Tower Group International (TWGP) Turnaround Might Actually Happen

Jacob Harper  |

Bermuda-based casualty and property insurer Tower Group International (TWGP) finally released their much delayed, much anticipated second quarter earnings report on Nov. 22. The report showed that as expected Tower Group lost money, but the company’s position was not nearly as dire as investors and analysts had worked themselves up to believe.

The horrors conjured in the minds of frightened investors turned out to be much more severe than reality. Those fears, however, did have real market power. In the three months between when the earnings were first supposed to come out, delay after delay, and the report’s eventual publication saw investor pessimism reach a fever pitch, with shares of the company plummeting some 75 percent.

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Restatements of 2011 and 2012 financial statements spooked investors considerably more, pushing the stock to historic lows. However, Tower Group’s stock rebounded considerably on the hard data. Of particular note was that Tower Group beat revenue expectations and shed costs considerably by laying off 10 percent of its workforce.

The company has been hammered by losses stemming from an onrush of claims in the wake of Superstorm Sandy. However, current analyst consensus asserts the troubled company will return to profitability as soon as next quarter.

For their third quarter earnings report, Tower Group reported a net loss of $507 million, or $8.88 per share, versus the net loss of $16.8 million, or $0.39 per share, from the same period a year ago. Revenue for the quarter was $460.5 million, as compared to $506.4 million from the same quarter the previous year. Analysts were expecting a net loss of $5.42 per share on revenues of $446.5 million.

Incidentally, Tower Group is the Financials Sector component of the Turnaround Stock Portfolio, a collection of moribund companies we felt had a chance of turning things around. Although Tower Group is still the biggest loser in the portfolio since we began tracking in late September, the post-earnings release bounce has mitigated a sizable portion of the losses.

Tower Group was up 7.91 percent in midday trading to hit $4.23 a share.

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