Tower Group Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of insurance company Tower Group (Nasdaq: TWGP  ) fell 13% this morning after the company released earnings.

So what: Earnings per share jumped nicely to $0.92 from $0.72 a year ago and easily topped the $0.83 analysts expected. But it was outlook that investors are focused on today. The company expects 2011 earnings per share of $2.70 to $2.90 per share, but analysts had set their sights on $3.46 per share.

Now what: The fourth-quarter earnings beat is welcome news, but it looks like analysts had gotten ahead of themselves with expectations for 2011. Management said it expected challenging conditions to continue in 2011 and expected lower returns on its investment portfolio. It looks like management wants to overpromise and underdeliver, and considering the big drop today, I see this as a nice buying opportunity.

Interested in more info on Tower Group? Add it to your watchlist.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (2) | Recommend This Article (2)

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  • Report this Comment On March 01, 2011, at 1:29 PM, bobspeldbackwrds wrote:

    I'm long TWGP and have been for about 6 months now. I based my expectations not on what the analysts were projecting but using conservative assumptions about future growth. My modeling nowhere near projected what the analysts had done. As far as I'm concerned this is a tremendous buying opportunity for a stock that is grossly undervalued even before the 15% drop today. It had a great earnings report and the haircut is now built in based on lowered expectations. Today its around $23. I expect in 3 years or less this will be a $50 stock.

  • Report this Comment On March 01, 2011, at 11:54 PM, ikkyu2 wrote:

    Did you really mean that management wants to "overpromise and underdeliver" as you stated? I think from your next sentence that you may have meant the opposite.

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