XL Group Had An Extra-Large Q2 Beat, Macquarie Raises Its Price Target

XL Group Ltd XL shares are trading higher after Macquarie boosted the price target from $38 to $40. Analyst Amit Kumar reiterated an Outperform rating. The analyst continued to view the stock as a top pick citing its strong reserve position, increasing synergies, ROE expansion and initiatives on capital return.

Following the company's second quarter earnings beat, Street revised its estimates for 2016 from $1.66 to $1.94. The brokerage pointed out that the consensus increased from $3.39 to $3.43. The company expects favorable revision of estimates and sees EPS on the higher end of the range.

The analyst said in a note, "Earlier this year, we analysed XL's 2015 Global Loss Triangles and found the company's reserves to be redundant by approx. $1.1 billion or 4.7% of total reserves (see note). We found the Reinsurance segment and the Insurance segment to be redundant at 4.8% and 4.4%, respectively. We estimate $235 million in reserve releases in 2016."

The brokerage pointed out that XL has revised its synergies estimates from about $200 million at the time of acquisition to $550 million before the next year ends. Also, the company stands to gain from revised operating expenses of $1.77-$1.84 million compared to the previous estimate of $1.85-$1.91 million.

XL Group has been doing well on the capital management having increased its allocation for share buyback program from $700 million to $950 million following the repurchase of $683 million worth of shares in the first two quarters of the year.

The stock traded up by $0.27, or 0.81 percent, to $33.77.