JMP Raises Price Target On ProAssurance After Meeting With Management

"[W]e believe PRA is well situated for both the challenging insurance market and changing healthcare environment at hand today," analyst Matthew Carletti wrote in a note.

The analyst, who maintains his Market Outperform rating on the stock, said his bullish thesis is based on a "differentiated product that commands a premium price," products covering a broad spectrum within healthcare, a solid balance sheet and strong underwriting discipline.

Carletti said ACA will likely present challenges as well as opportunities, and ProAssurance is better positioned to take advantage of than most of its peers.

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Commenting on ProAssurance's strong balance sheet, the analyst estimates reserve redundancies conservatively at $5/share. The analyst expects full-year EPS of $2.40.

"As long as loss cost inflation remains benign, releases should continue. If loss cost inflation were to tick up materially, PRA would have a significant cushion, while we believe many peers would likely be forced to add to reserves," Carletti highlighted.

According to the analyst, the stock currently trades at 1.4x 1Q16 reported book value, and valuation is compelling.

After adjusting for the reserve redundancies estimate, the analyst noted that the stock is trading closer to economic book value (JMP estimate 1.2x), a level that, "in our opinion, is too low for such a high-quality company with a track record such as PRA's (12 percent BV CAGR over the past five years with a standard deviation of 2 percent; 16 percent BV CAGR since IPO)."

At the time of writing, shares of ProAssurance were down 1.08 percent at $51.47.