In its concerted effort to boost shareholder value, the board of directors of XL Group Plc (XL) approved a share repurchase program wherein the company is authorized to buy back up to $750 million worth of shares.
The current authorization will also replace $190 million remaining under the previous authorization.
The repurchase authorization is primarily supported by XL Group’s strong balance sheet and its ability to generate healthy cash flow. XL Group exited 2011 with cash and equivalents of $3.83 billion compared with $3.02 billion at 2010 end. The company expects to repurchase shares from available cash.
The last buyback authorization, worth a $1 billion of shares, was made in October 2010.
XL Group has always actively bought back shares. In 2011 the company spent $665.5 million to buy back 31.7 million shares with 4.9 million shares repurchased in the fourth quarter for $99.9 million.
Following the company’s announcement, there was a spurt in the share movement. The share price of XL Group increased 1.2% to close at $20.32 on Monday.
There was no earnings momentum over the last 7 days. We believe the news to enhance shareholder value might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for first-quarter 2012 is 39 cents per share. For full year 2012 and 2013, the Zacks Consensus Estimates are, respectively, $1.85 and $2.18.
ACE Limited (ACE), which competes with XL Group, also hopes to propose a 4.25% increase in the quarterly dividend to return more value to its shareholders.
XL Group suffered hugely in the fourth quarter incurring an operating loss largely due to higher catastrophe losses, lower levels of positive prior-year loss development and higher tax expenses.
However, based on the company’s conservative underwriting practices and repositioned P&C portfolio, we expect XL Group to fare well going forward. The company is also taking initiatives to expand its operations and is aiming to tap the opportunities in the emerging economies. XL Group has also received final approval to establish a Brazilian insurance operation.
The quantitative Zacks #5 Rank (short term Strong Sell rating) for XL Group indicates downward pressure on the stock over the near term.
Based in Dublin, Ireland, XL Group is a leading global provider of insurance, reinsurance and financial risk solutions to enterprises and insurance companies.
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