Rating Change #1

Validus Holdings ( VR) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, weak operating cash flow and deteriorating net income.

Highlights from the ratings report include:
  • VALIDUS HOLDINGS LTD has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, VALIDUS HOLDINGS LTD reported lower earnings of $3.49 versus $9.38 in the prior year. For the next year, the market is expecting a contraction of 49.9% in earnings ($1.75 versus $3.49).
  • Net operating cash flow has declined marginally to $168.56 million or 8.37% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • VR's debt-to-equity ratio is very low at 0.16 and is currently below that of the industry average, implying that there has been very successful management of debt levels.

Validus Holdings, Ltd., through its subsidiaries, provides reinsurance and insurance coverage in the property, marine, and specialty lines markets worldwide. The company has a P/E ratio of 11.5, above the average insurance industry P/E ratio of 11.2 and below the S&P 500 P/E ratio of 17.7. Validus has a market cap of $2.9 billion and is part of the financial sector and insurance industry. Shares are down 2.6% year to date as of the close of trading on Friday.

You can view the full Validus Ratings Report or get investment ideas from our investment research center.

-- Reported by Kevin Baker in Jupiter, Fla.

For additional Investment Research check out our Ratings Research Center.

For all other upgrades and downgrades made by TheStreet Ratings Model today check out our upgrades and downgrades list.
Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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