A 13G filed with the SEC has disclosed that billionaire Steve Cohen’s SAC Capital Advisors owns 2.3 million shares of $4 billion market cap property and casualty insurance company RenaissanceRe Holdings Ltd. (NYSE:RNR), giving the large hedge fund 5.3% of the total shares outstanding. We track quarterly 13F filings from hedge funds such as SAC as well as other notable investors to help us develop investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and can see from our database that Cohen and his team only owned about 120,000 shares at the beginning of this year. So the fund has become more bullish on RenaissanceRe Holdings Ltd. (NYSE:RNR) over the course of this year, as the stock price has risen 13%. Find Cohen’s favorite stocks from the end of December.
Total revenues declined in the first quarter of 2013 versus a year earlier, and with operating expenses increasing RenaissanceRe reported an 11% decrease in net income; the decline does fall to 5% if we include smaller net income from noncontrolling interests and smaller dividends on preferred shares. However, the business does not need to do particularly well: the trailing earnings multiple is 8, so even if earnings per share decrease a limited amount going forward the stock could end up a good value at these prices. We’d note that Wall Street analysts are projecting slightly lower EPS in 2014 than what RenaissanceRe Holdings Ltd. (NYSE:RNR) has achieved on a trailing basis, with the result being a forward P/E of 9. The company appears to be less of an apparent value in asset terms, with the current market capitalization representing a premium to the book value of RenaissanceRe’s equity (the P/B ratio is 1.3).
We’ve already mentioned the limited involvement from SAC at the end of the fourth quarter of 2012. Citadel Investment Group, managed by billionaire Ken Griffin, more than doubled the size of its own position in RenaissanceRe Holdings Ltd. (NYSE:RNR) between October and December, closing the year with about 950,000 shares in its portfolio (check out more stocks Griffin was buying). William Gray’s Orbis Investment Management cut its stake by 60% but still disclosed ownership of 1.2 million shares (see more stocks Orbis owned).
Peers for RenaissanceRe Holdings Ltd. (NYSE:RNR) include ACE Limited (NYSE:ACE), The Chubb Corporation (NYSE:CB), PartnerRe (NYSE:PRE), and XL Group plc (NYSE:XL). ACE Limited (NYSE:ACE) and The Chubb Corporation (NYSE:CB) are also trading at premiums to their book values, and feature higher earnings multiples than RenaisssanceRe as well; specifically, their trailing P/E multiples are in the 12-14 range. However, these companies are considerably larger with market capitalizations of over $20 billion in each case. In addition, their revenue numbers last quarter were closer to flat compared to the first quarter of 2012, with a small increase at ACE Limited (NYSE:ACE). Conditions aren’t that good at PartnerRe: revenue has been down only slightly, but net income dropped 35% in its most recent quarter compared to the same period in the previous year. The sell-side is looking for further weakening on the bottom line, and as a result the forward earnings multiple is 11. XL Group plc (NYSE:XL)’s earnings have been considerably higher in percentage terms, but revenue growth has been more limited and so we’d say that the growth rate of net income is going to come down to match improvements on the top line. That stock’s P/B ratio is 0.8 and its trailing and forward P/E multiples are both 11, however, so it may be the most conventional-looking value play of the lot.
Cohen and his team probably don’t need RenaissanceRe Holdings Ltd. (NYSE:RNR) to grow its earnings in order for this investment to work out- the valuation is actually fairly low when we look at trailing performance. The issue is that business has been declining, and so it’s uncertain whether or not the insurer will be able to preserve its current conditions. The stock does not look too out of place for its industry, but we’d suggest that investors do at least some research on XL Group plc (NYSE:XL) as an alternative before looking at RenaissanceRe Holdings Ltd. (NYSE:RNR).
Disclosure: I own no shares of any stocks mentioned in this article.