Tower Group International (TWGP) has been having a tough year, but TWGP stock tumbled 30% as more news showed the company’s earning dropping and capital loss mounting.
The stock fell after TWGP announced it may need to add as much as $105 million to reserves.
Compass Point analyst Ken Billingsley reduced the rating on Tower Group from Buy to Neutral, and lowered the price target from $5.25 to $5.00.
In its report, Compass Point pointed to how TWGP “announced another reserve charge in 3Q13 of between $75M and $105 for the same lines that precipitated the 2Q13 reserve charge of $326.7M (workers’ comp, commercial multi-peril, other liability, and commercial auto liability). The company estimates that its U.S. surplus, net of cessions to Bermuda affiliate, will drop to between $315M and $335M from the $374M reported at the end of 2Q13. We estimate the combined statutory surplus of TWGP to be $340M, down from our previous estimate of $445M.”
Toward the end of November, TWGP stock jumped 10% after falling in the previous months due to growing capital concerns.
But its second quarter — operating loss of $5.10 per share on revenue of $460.5 million — had some thinking that Tower Group’s turnaround initiatives were gaining traction.
Tower Group officials had announced a workforce reduction of 10%, which was expected to save the company about $21 million annually.
The company then was quick to announce that change was coming.
“To address current liquidity needs at the holding company, we are exploring the sale of some of our holding company and operating assets as well as exploring the possibility of raising additional capital,” President and CEO Michael Lee said last month. “We are working diligently to address these challenges.”
In fact, TWGP sold its investment in Canopius Group Limited to pay off some $70 million in credit facility due next year.
But the move still wasn’t enough to stop what some had seen as a fall that was a long time coming, especially considering TWGP stock was earlier this week already down some 50% year to date.
Note that Jabil Circuit (JBL) also fell yesterday, plummeting some 20% after posting weak first-quarter 2014 results in which revenue fell from the same year-ago period. Jabil announced that it expected its diversified manufacturing and high-velocity businesses to decrease 25% year over year.
Of course, Tower Group may have more of a struggle rebuilding.
With analyst faith severely lowered by the continued bad news for TWGP, the company must make 2014 a year of rebuilding — and hope that its foundation doesn’t remain as weak as it now seems.
