Morgan: Investors Overpaying for Assurant At Current Levels

Morgan Stanley is out with a very cautious call on Assurant (AIZ) saying the stock benefited greatly from a momentum trade during the last few months of 2007. As the subprime crisis worsened and financial stocks fell, AIZ rose on the premise that Assurant’s specialty property business (~50% of earnings) would benefit. MSCO takes a more cautious view of the property business, but their focus here is on the faltering economy and the attendant risks to AIZ — largely overlooked during the subprime-fueled run in the stock.

The firm thinks investors are overpaying for Assurant’s Solutions business. In their sum of the parts analysis, attributing what they see as reasonable peer multiples to Assurant’s other businesses implies that investors buying AIZ in the mid-$60s are paying a healthy multiple for its Solutions business. The business has produced roughly a 10% return the past two years (the company’s target is 14%–16%), and they see investors paying some 1.6–1.9x BV, ascribing some 2–3x the value to future growth of the S&P 500.

Notablecalls: Take a look at the chart. If this one goes below $63.40... it's going to be hell for the longs. Actionable Short Call!