Raymond James lifts Mercury General stock to Strong Buy

On Wednesday, Raymond (NSE:RYMD) James made a positive adjustment to Mercury General’s stock rating, upgrading it from Outperform to Strong Buy. Accompanying this upgrade, the firm also raised the price target for the insurance company’s shares to $80.00, up from the previous target of $70.00. Currently trading at $50.09 with a P/E ratio of just 4.96, InvestingPro analysis suggests the stock is currently undervalued, with additional metrics pointing to strong financial health.

The upgrade comes amid considerations of Mercury General’s (NYSE:MCY) position following the recent wildfires. Despite the uncertainties regarding the total losses incurred from the Eaton (NYSE:ETN) Fire, Raymond James sees a potential subrogation counterclaim that could serve to mitigate some of the financial impact on Mercury General.

Additionally, the firm anticipates that Mercury General will gain from a likely shift in the pricing landscape for California homeowners’ insurance over the next year and a half. This expected change could provide a favorable backdrop for the company’s growth and profitability.

Mercury General’s fourth-quarter results from 2024 were also highlighted as a factor in the upgrade. According to Raymond James, these results showcased some of the strongest underlying performance for the company in over a decade. The firm expects this trend to persist provided that the current patterns of auto frequency and severity of losses remain consistent.

Investors and market watchers will be keeping an eye on Mercury General’s stock performance following this upgrade, as well as monitoring the company’s response to the challenges and opportunities identified by Raymond James.

In other recent news, Mercury General Corporation reported a significant beat on both earnings and revenue for the fourth quarter. The insurance company posted adjusted earnings per share of $2.78, surpassing the analyst consensus estimate of $1.77. Revenue also exceeded expectations, coming in at $1.35 billion versus estimates of $1.27 billion.

Mercury General’s net premiums earned rose 18.1% year-over-year to $1.35 billion in Q4. The company’s combined ratio, a measure of underwriting profitability, improved to 91.4% from 98.6% in the previous year’s quarter.

For the full year 2024, the company reported net income of $468 million, or $8.45 per diluted share, a significant increase from $96.3 million, or $1.74 per diluted share, in 2023. The company also declared a quarterly dividend of $0.3175 per share.

Mercury General shared its expectations of a 12% rate increase for its California homeowners insurance business, set to take effect in March 2025. This segment represented about 16% of the company’s total net premiums earned in 2024. These are the recent developments for the company.

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