Insurance Stocks May Have Risen Too Far Too Fast

Randy Binner of FBR Capital Markets has downgraded Metlife Inc MET, Hartford Financial Services Group Inc HIG and Maiden Holdings, Ltd. MHLD to Market Perform, saying the risk/reward for these stocks have become less attractive after the election rally.

Following Donald Trump’s win, Binner said, on average, life names have climbed 15 percent, property/casualty have risen 11 percent and mortgage insurers have advanced 7 percent.

The rally was attributed to the higher rate environment, potential benefit from a lower corporate tax rate and the benefit of deregulation.

Insurance Rally Specifics

“In general, our analysis indicates that insurance stocks have factored in many of these potential benefits. The challenge, of course, is that yields could again move lower, and tax reform and deregulation are not certain,” Binner wrote in a note.

On Metlife, Binner said his analysis shows shares efficiently discounting spread, tax and deregulation factors post-election, while the upcoming spin catalyst and associated buyback are now better priced into shares.

On Hartford, the post-election rally has put shares close to FBR’s $47 price target, while Maiden shares jumped 17 percent despite seen only marginally benefiting from higher rates.

“Given its Bermuda domicile, the name does not see much potential tax benefit, nor a benefit from deregulation. MHLD is trading at 92 percent of its five-year min/max P/E valuation,” Binner continued.

Under-Discounted Stocks

The analyst said the following stocks have under discounted the benefit of the post-election environment:

  • AFLAC Incorporated AFL.
  • Allstate Corp ALL.
  • AmTrust Financial Services Inc AFSI.
  • MGIC Investment Corp. MTG.
  • NMI Holdings Inc NMIH.
  • Progressive Corp PGR.
  • Radian Group Inc RDN.
  • Travelers Companies Inc TRV.
  • Analyst's Changes

    Further, Binner raised the price targets of the following companies.

Posted In: Donald TrumpFBR CapitalRandy BinnerAnalyst ColorLong IdeasNewsShort IdeasDowngradesPrice TargetReiterationAnalyst RatingsTrading Ideas

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