Citi adds 9 insurance stocks to coverage; Arthur J. Gallagher is top pick
Citi on Thursday added nine insurers to its coverage, saying their business model is attractive but acknowledged their elevated valuation levels.
"Heading into 2023 we believe property insurance and casualty brokers are a lower-risk, defensive group favorable to the underwriters currently," analyst Michael Ward wrote in a note to clients.
Citi's top pick in the space is Arthur J. Gallagher (NYSE:AJG), which it initiated at Buy with $225 price target (16.5% potential upside to last close). "We like AJG for potential upside to consensus & guidance, reinsurance/Willis Re momentum building, and a free cash flow advantage from the utilization of ~$750M of tax credits over the next decade," said Ward.
Citi also initiated American International (AIG) at Buy and $72 PT (14.9% potential upside). Ward cited "management's commitment to divestiture of its life & retirement business in a deliberate manner, significant improvements in profitability of P&C business, and potential further upside from higher new money yields and ongoing cost savings programs".
"... reasons to like AIG as both a short- and long-term investment haven't been this numerous nor tangible arguably since the financial crisis," he added.
Citi assigned Neutral/High Risk ratings to Root (ROOT) on near-term profitability uncertainty ($6 PT) and Doma (DOMA) on top-line challenges in a difficult mortgage environment ($0.45 PT).
It also initiated the following stocks at Neutral:
- Aon (AON): "current premium valuation limits upside" ($339 PT).
- Willis Towers Watson (WTW): "peers appear better positioned to capitalize on favorable trends" ($247 PT).
- Marsh & McLennan (MMC): "premium valuation relative to its historical average" ($185 PT).
- Brown & Brown (BRO): "recent M&A increases its Europe exposure at a time of macro uncertainty, risks related to Florida mix" ($62 PT).
- Ryan Specialty (RYAN): "currently trades at a material premium to peers" ($42 PT).