Critical Review: Donegal Group (DGICA) & Assured Guaranty (AGO)

Donegal Group (NASDAQ: DGICA) and Assured Guaranty (NYSE:AGO) are both property & casualty insurance – nec companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, valuation, profitability, risk, dividends, earnings and analyst recommendations.

Dividends

Donegal Group pays an annual dividend of $0.56 per share and has a dividend yield of 3.2%. Assured Guaranty pays an annual dividend of $0.57 per share and has a dividend yield of 1.6%. Donegal Group pays out 101.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Assured Guaranty pays out 8.2% of its earnings in the form of a dividend. Assured Guaranty has increased its dividend for 5 consecutive years.

Analyst Ratings

This is a summary of current ratings and price targets for Donegal Group and Assured Guaranty, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Donegal Group 0 0 2 0 3.00
Assured Guaranty 0 1 2 0 2.67

Donegal Group presently has a consensus target price of $19.50, suggesting a potential upside of 12.07%. Assured Guaranty has a consensus target price of $47.00, suggesting a potential upside of 28.45%. Given Assured Guaranty’s higher possible upside, analysts plainly believe Assured Guaranty is more favorable than Donegal Group.

Insider and Institutional Ownership

29.7% of Donegal Group shares are owned by institutional investors. Comparatively, 97.2% of Assured Guaranty shares are owned by institutional investors. 11.9% of Donegal Group shares are owned by insiders. Comparatively, 2.6% of Assured Guaranty shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Volatility and Risk

Donegal Group has a beta of 0.28, meaning that its stock price is 72% less volatile than the S&P 500. Comparatively, Assured Guaranty has a beta of 1.66, meaning that its stock price is 66% more volatile than the S&P 500.

Profitability

This table compares Donegal Group and Assured Guaranty’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Donegal Group 2.13% 2.81% 0.75%
Assured Guaranty 45.38% 10.59% 4.88%

Valuation and Earnings

This table compares Donegal Group and Assured Guaranty’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio NetIncome Earnings Per Share Price/Earnings Ratio
Donegal Group $688.42 million 0.69 $30.80 million $0.55 31.64
Assured Guaranty $1.68 billion 2.56 $881.00 million $6.96 5.26

Assured Guaranty has higher revenue and earnings than Donegal Group. Assured Guaranty is trading at a lower price-to-earnings ratio than Donegal Group, indicating that it is currently the more affordable of the two stocks.

Summary

Assured Guaranty beats Donegal Group on 12 of the 16 factors compared between the two stocks.

Donegal Group Company Profile

Donegal Group Inc. (DGI) is an insurance holding company whose insurance subsidiaries offer personal and commercial lines of property and casualty insurance. The Company offered its insurance business to various businesses and individuals in 21 Mid-Atlantic, Midwestern, New England and Southern states, as of December 31, 2016. It has four segments: investment function, personal lines of insurance, commercial lines of insurance and investment in Donegal Financial Services Corporation (DFSC). Its insurance operations include two segments: personal lines of insurance and commercial lines of insurance. The personal lines of insurance, which its insurance subsidiaries write consists of private passenger automobile and homeowners insurance. The commercial lines of insurance, which its insurance subsidiaries write consists of commercial automobile, commercial multi-peril and workers’ compensation insurance. It holds interests in DFSC, which is a unitary savings and loan holding company.

Assured Guaranty Company Profile

Assured Guaranty Ltd. is a holding company. The Company, through its subsidiaries, provides credit protection products to the United States and international public finance, including infrastructure, and structured finance markets. It applies its credit underwriting judgment, risk management skills and capital markets experience primarily to offer financial guaranty insurance that protects holders of debt instruments and other monetary obligations from defaults in scheduled payments. It markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities, as well as to investors in such obligations. It guarantees obligations issued principally in the United States and the United Kingdom and also guarantees obligations issued in other countries and regions, including Australia and Western Europe. It also provides other forms of insurance that are in line with its risk profile and benefit from its underwriting experience.

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