Over the past six months, Assured Guaranty’s shares (currently trading at $84.11) have posted a disappointing 11.9% loss, well below the S&P 500’s 5% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Assured Guaranty, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Assured Guaranty Not Exciting?
Despite the more favorable entry price, we're swiping left on Assured Guaranty for now. Here are three reasons why you should be careful with AGO and a stock we'd rather own.
1. Declining Net Premiums Earned Reflects Weakness
Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.
Assured Guaranty’s net premiums earned has declined by 6.2% annually over the last four years, much worse than the broader insurance industry.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Assured Guaranty’s revenue to drop by 24.2%, a decrease from its 2.8% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.
Over the last five years, Assured Guaranty has averaged an ROE of 7.9%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.
Final Judgment
Assured Guaranty’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 0.7× forward P/B (or $84.11 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top software and edge computing picks.
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