NEW YORK (TheStreet) -- Shares of XL Group (XL) were falling 5% to $33.25 Wednesday after the insurance provider confirmed it is engaged in preliminary discussions with rival insurance provider Catlin about a potential transaction.

The two companies are discussing the possibility of XL Group acquiring Catlin, or of the two merging to form a combined company. XL Group said that there is no assurance the discussions will result in a transaction, not is there any certainty any transactions would proceed.

"Both XL and Catlin - respected, innovative, global P&C firms - are well positioned on their own," XL Group CEO Mick McGarvick said in a statement. "However, we both believe that we will be far better positioned and stronger together. We see this transaction as deeply accelerating the strategies of both companies."

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TheStreet Ratings team rates XL GROUP PLC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate XL GROUP PLC (XL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • XL's debt-to-equity ratio is very low at 0.17 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • The revenue fell significantly faster than the industry average of 21.6%. Since the same quarter one year prior, revenues fell by 18.9%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • XL GROUP PLC's earnings per share declined by 42.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, XL GROUP PLC increased its bottom line by earning $3.62 versus $2.10 in the prior year. For the next year, the market is expecting a contraction of 5.0% in earnings ($3.44 versus $3.62).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Insurance industry. The net income has significantly decreased by 46.6% when compared to the same quarter one year ago, falling from $135.65 million to $72.38 million.
  • You can view the full analysis from the report here: XL Ratings Report

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