XL Capital: UBS Still Bullish After Recent Run-up

I was planning to write an update on XL Capital (XL) after the company filed its first quarter 10-Q on May 8th, but decided not to when I realized that UBS P&C insurance analyst Brian Meredith had already stated very well what I wanted to say (and more) in his May 4th report on XL entitled, “Asset Valuation Nearing the Bottom?”

Here are the headlines from his report:

  • Investment marks appear to be nearing a bottom
    • Corporate bonds marked below 1930’s default rates
    • Marks appear to be positive QTD
  • Top line might decline less than guided, but increasing risk of large losses
    • Improving industry fundamentals – and confidence in XL – could spur growth
    • Greater emphasis on short-tail cat-exposed lines could increase loss volatility
  • EPS estimates reduced slightly due to lower yields on investment portfolio, mainly due to continued de-risking
  • Price target of $15 maintained based on 12-month forward BVPS

It takes guts and conviction to call a stock “cheap” after a 150% YTD run-up (stock was at $10.84 as of his report), and to call a bottom on an insurance company’s investment portfolio marks (ok, he hedged with the question mark, but so did I in my Feb 5th article arguing that the stock was poised to “pop”).

Anybody who has access to UBS research and some interest in the insurance industry would be well served to read Brian’s reports on P&C insurers.  He does exceptional work and has a great record.

As I mentioned in a “tweet” three weeks ago, I also maintain the $15 price target shown in my November 25, 2008 article, “Reinsurer Stocks: A Fear-Driven Market Creates Opportunity.”

(Disclosure: The author is long XL)

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One Response to “XL Capital: UBS Still Bullish After Recent Run-up”

  1. Miguel Barbosa Says:

    Hi John,

    Sorry I havent been able to call. Great stuff keep it coming :) I really enjoy your blog.

    Best,
    Miguel


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