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Recent Selloff Of Hanover Insurance Group Stock Presents Buying Opportunity

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Recent Selloff Of Hanover Insurance Group Stock Presents Buying Opportunity

JMP Securities maintained its Market Outperform rating and $95 price target on Hanover Insurance Group Inc (NYSE: THG) as it feels the recent selloff creates a buying opportunity.

Shares of Hanover are down 8 percent quarter-to-date, which is the worst in the JMP coverage universe. This compares to the +4 percent for the S&P 500 and an average of +6 percent within JMP's coverage universe. Currently, the issue trades very close to its 52-week low.

The brokerage attributes the underperformance to fears that:

    1. "CEO Joseph Zubretsky will exercise his 'free pass' as new CEO to cushion reserves."
    2. "Remaining arbs selling shares as it now appears that a sale of the company is not in the offing."

Related Link: William Blair Says Buy Auto Insurers, "Bad News Is Good News"

But, analyst Matthew Carletti stated the investor fears are overblown; even if Zubretsky exercises his right to add to reserves, it would likely result in less than $100 million, which is just a small portion of the market cap incurred recently.

The analyst noted that the potential reserve addition should be negligible versus 2017 estimated pre-tax earnings of $431 million and June 30 shareholders equity of $3.0 billion.

"Importantly, we believe any reserve addition would be done out of an abundance of caution, with an eye toward strengthening the earnings power/stability of the company going forward," Carletti wrote in a note.

On the positive side, Carletti said there is no reason to worry as it is a "measured action aimed at positioning the Personal Lines and Lloyd's businesses for the long run while protecting margins."

The analyst believes shares deserve to trade at roughly 1.35x book value. The $95 price target is based on 1.3x forward book value, a slight discount to the implied 1.35x multiple.

At time of writing, Hanover was trading at $75.81, down 0.88 percent.

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Latest Ratings for THG

DateFirmActionFromTo
May 2021B of A SecuritiesInitiates Coverage OnBuy
Apr 2021JMP SecuritiesMaintainsMarket Outperform
Sep 2020Credit SuisseInitiates Coverage OnNeutral

View More Analyst Ratings for THG
View the Latest Analyst Ratings

 

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