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On Friday, Morgan Stanley (NYSE:MS) upgraded Talanx (ETR:TLXGn) stock from Equalweight to Overweight, setting a new price target of EUR114.00, up from the previous EUR96.00. The revision reflects a positive outlook on the company’s long-term potential and a belief in its current undervaluation.
Analysts at Morgan Stanley highlighted Talanx’s strong balance sheet and its resilience to financial market volatility. With a focus on the company’s future, they anticipate a significant re-rating potential as the market comes to appreciate Talanx’s conservative and reliable approach to its primary operations, akin to that of Hannover Re (OTC:HVRRY).
The earnings of Talanx are evenly split between reinsurance and primary operations, but the valuation does not mirror this balance, favoring reinsurance at approximately 65:35. Morgan Stanley analysts argue that Talanx’s primary business should command a valuation closer to that of Hannover Re, which currently trades at around 12 times earnings, compared to Talanx’s primary operations at roughly 7 times.
The firm suggests that aligning the valuation of Talanx’s primary operations with Hannover’s reinsurance could lead to a more balanced assessment. They estimate that a one percentage point re-rating of the primary operations could potentially enhance the group’s overall valuation by approximately 5-6%.
Morgan Stanley’s upgrade comes despite Talanx shares trading at all-time highs, indicating a strong conviction in the company’s future performance and market positioning. The firm’s analysis projects that as the market adjusts its view on Talanx’s operations, the stock’s valuation could see an upward movement.
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