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On Friday, JPMorgan analysts downgraded Sompo Holdings, Inc (8630:JP) (OTC: SMPNY) stock rating from Overweight to Neutral, while simultaneously increasing their price target from JPY4,770.00 to JPY4,900.00. The revision comes as the stock has seen a 35.7% surge over the past six months, despite a recent 3.9% decline in the past week. The revision reflects a new valuation based on projected financial metrics and market conditions anticipated by the end of the fiscal year 2025. According to InvestingPro data, the company’s current market capitalization stands at $28.2 billion, with strong financial health indicators.
The analysts at JPMorgan have calculated the new price target for Sompo Holdings by estimating the company’s fair equity value. This involved combining the business value, calculated by applying a 12.5 times multiple to their JPY304.9 billion adjusted profit forecast for FY2025, with the value of after-tax unrealized gains on shareholdings, which includes domestic stocks and Palantir (NASDAQ:PLTR) stock, multiplied by 0.7. These gains are expected to be JPY789.3 billion at the end of March 2025. The company currently trades at a P/E ratio of 9x and maintains a healthy PEG ratio of 0.32, suggesting efficient growth relative to its valuation. InvestingPro subscribers have access to over 10 additional key insights about Sompo’s valuation and growth prospects.
In their assessment, JPMorgan has incorporated an 8% required cost of capital for the profit estimate and a discount for the risk of price fluctuations and the sequential realization of unrealized gains from selling cross-shareholdings. The analysts’ price target suggests that Sompo Holdings’ stock will offer a dividend yield of 3.1% for FY2025, which aligns with the company’s current dividend yield of 3.15%. Notably, Sompo has maintained dividend payments for 18 consecutive years and has raised its dividend for 8 consecutive years, demonstrating strong commitment to shareholder returns.
Furthermore, the analysts have used multiple financial indicators to determine the stock’s value, including a 12 times multiple based on FY2025E adjusted consolidated profit on an IFRS basis, and a 0.95 times multiple based on end-FY2023 comprehensive equity, which adds after-tax CSM to IFRS capital. The company maintains strong financial health with a current ratio of 30.55 and an Altman Z-Score of 4.59, indicating robust financial stability. Based on these indicators and InvestingPro’s Fair Value analysis, JPMorgan’s analysts have concluded that Sompo Holdings’ stock no longer presents an undervalued opportunity, leading to the downgrade of its rating to Neutral.
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