Zurich Insurance Group AG (VTX:ZURN): Does The Earnings Decline Make It An Underperformer?
Measuring Zurich Insurance Group AG’s (SWX:ZURN) track record of past performance is a valuable exercise for investors. It allows us to understand whether or not the company has met or exceed expectations, which is an insightful signal for future performance. Today I will assess ZURN’s recent performance announced on 31 December 2017 and compare these figures to its historical trend and industry movements. See our latest analysis for Zurich Insurance Group
Despite a decline, did ZURN underperform the long-term trend and the industry?
I prefer to use the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to examine different stocks in a uniform manner using the latest information. For Zurich Insurance Group, its most recent earnings (trailing twelve month) is US$3.00B, which compared to the previous year’s level, has fallen by -6.45%. Given that these figures may be fairly short-term, I have calculated an annualized five-year figure for Zurich Insurance Group’s net income, which stands at US$3.42B This doesn’t seem to paint a better picture, since earnings seem to have gradually been deteriorating over the longer term.
What could be happening here? Well, let’s look at what’s occurring with margins and if the rest of the industry is facing the same headwind. Revenue growth over the last couple of years, has been positive, yet earnings growth has been deteriorating. This means Zurich Insurance Group has been ramping up expenses, which is hurting margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the CH insurance industry has been enduring some headwinds in the previous twelve months, leading to an average earnings drop of -2.28%. This is a momentous change, given that the industry has been delivering a positive rate of 4.57%, on average, over the last five years. This means whatever near-term headwind the industry is enduring, it’s hitting Zurich Insurance Group harder than its peers.
What does this mean?
Zurich Insurance Group’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. In some cases, companies that endure an extended period of decline in earnings are going through some sort of reinvestment phase Though if the whole industry is struggling to grow over time, it may be a indicator of a structural shift, which makes Zurich Insurance Group and its peers a riskier investment. I suggest you continue to research Zurich Insurance Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ZURN’s future growth? Take a look at our free research report of analyst consensus for ZURN’s outlook.
Financial Health: Is ZURN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
