BMO cuts Selective Insurance price target to $92, keeps Outperform

On Friday, BMO Capital Markets adjusted its outlook on Selective Insurance Group (NASDAQ:SIGI) shares, reducing the price target from $105.00 to $92.00, while maintaining an Outperform rating. The adjustment comes after Selective Insurance Group reported a disappointing earnings per share (EPS) result on Thursday, which led to a significant drop in stock value of approximately 13%. According to InvestingPro data, the stock has fallen nearly 12% in the past week and is now trading near its 52-week low of $80.84, with technical indicators suggesting oversold conditions. The current Fair Value analysis indicates the stock may be undervalued at these levels. The decline was attributed to a $75 million charge, marking the company’s fourth casualty charge in the past five quarters.

In a statement, BMO Capital analysts expressed continued support for the Outperform rating despite the recent earnings miss. They believe that Selective Insurance Group’s reserves are now in excellent condition, which is an improvement over their previous assessment of being in good condition. This confidence is based on the actions taken by the company to bolster its reserves. InvestingPro analysis shows the company maintains a GOOD Financial Health Score of 2.8, with particularly strong cash flow metrics. For deeper insights into Selective Insurance Group’s financial health and valuation metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

The analysts acknowledged that their previous upgrade of the stock late last year was somewhat premature. At that time, they had reservations about the fourth quarter’s implied guidance, which suggested a bleak outlook. However, they noted that the company had sufficiently increased its reserves, which should now position it for a stronger performance.

Selective Insurance Group’s history of casualty charges over the past several quarters has been a point of concern for investors. Nonetheless, BMO Capital’s analysts expect that the recent steps taken by the company to strengthen its financial reserves will mitigate future risks.

The firm’s revised price target of $92.00 reflects the impact of the recent charge and the subsequent stock price decline. Despite this setback, BMO Capital Markets reaffirms its belief in the company’s potential for recovery and growth, as indicated by the maintained Outperform rating. With a market capitalization of $5.09 billion and a P/E ratio of 26x, InvestingPro data reveals that three analysts have recently revised their earnings expectations downward for the upcoming period, though the company is still expected to remain profitable this year.

In other recent news, Selective Insurance Group reported fourth quarter earnings that fell short of analyst expectations, with earnings per share (EPS) of $1.62, compared to the anticipated $1.99. Despite a 10% increase in net premiums written (NPW) and a 24% rise in after-tax net investment income, the company’s combined ratio deteriorated to 98.5% from 93.7% in the fourth quarter of the previous year. The full-year results also reflected challenges, with a combined ratio for 2024 standing at 103.0%, including prior year casualty reserve strengthening of $311 million. The insurer’s NPW saw a 12% year-over-year increase, while after-tax net investment income grew by 17% from the previous year.

Matthew J. Carletti, an analyst from JPM, commented on the results, stating, "results that missed both our and consensus expectations, driven by adverse prior-period reserve development in the general liability book." He reaffirmed a Market Perform rating on Selective Insurance Group. Morgan Stanley (NYSE:MS) initiated coverage on Selective Insurance Group with an Equalweight rating and a price target of $105.00, citing the company’s pricing power, proximity to distribution partners through a unique field model, and a focused SMid-Cap underwriting risk appetite. In addition, BMO Capital Markets upgraded the stock from Market Perform to Outperform, raising the price target to $105, indicating confidence in the company’s ability to surpass consensus expectations in upcoming quarters.

The company’s strategic initiatives, such as exceeding $500 million of NPW in Excess & Surplus Lines and expanding its Standard Commercial Lines operating footprint, are aimed at positioning the company for long-term profitable growth. However, the recent reserve charges and the ongoing scrutiny of the general casualty book may continue to influence market sentiment. These are recent developments that investors should take into consideration.

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