JPMorgan reinstates Storebrand stock with underweight rating

On Monday, JPMorgan analysts reinstated coverage on Storebrand (STB:NO) (OTC: SREDY), issuing an underweight rating and setting a price target at NOK115.00. The stock has demonstrated remarkable strength, posting a 47.8% return over the past year and currently trading at $21.70, near its 52-week high. Despite these gains, JPMorgan anticipates a potential decline in the company’s earnings momentum, which could lead to a downward adjustment of consensus estimates and create vulnerability to decreasing bond yields. According to InvestingPro data, Storebrand currently trades at a P/E ratio of 9.88, suggesting relatively modest valuation levels despite its strong performance.

The analysts at JPMorgan have recognized Storebrand’s successful transformation of its business model, which has been a key factor in the stock’s recent robust performance. InvestingPro analysis reveals that Storebrand has maintained a consistent dividend growth track record, raising dividends for five consecutive years, with a current yield of 2.34%. The firm’s evaluation suggests that there is a downside risk to the current market consensus estimates for Storebrand’s future earnings, with InvestingPro data indicating an expected decline in net income for the current year.

JPMorgan’s analysis points to a negative correlation between Storebrand’s performance and lower bond yields. In the financial sector, bond yields often influence the profitability of insurance companies, as they affect the return on the investment portfolios that these companies manage. A decrease in bond yields could, therefore, adversely impact Storebrand’s earnings.

The analysts also draw a comparison with Dutch insurers, such as Aegon (NYSE:AEG) and ASR, which they believe present similar stories of transformation. According to JPMorgan, these companies could offer investors a similar opportunity for growth over the next decade but at more appealing valuations compared to Storebrand.

In summary, while acknowledging Storebrand’s past achievements in enhancing its business model and capitalizing on economic tailwinds, JPMorgan’s reinstated coverage comes with caution. The underweight rating and price target of NOK115.00 reflect the firm’s view that Storebrand’s shares may not maintain their strong earnings momentum and could be susceptible to market changes, particularly in the bond market.

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