On Wednesday, HSBC adjusted the financial outlook for Swiss Life (SIX:SLHN) Holding, a leading insurance group, by downgrading its stock from "Hold" to "Reduce" and reducing the price target to CHF640 from the previous CHF653. The revised valuation reflects a cautious stance on the company's future performance.
The analyst's approach to setting the target price included the average of three financial valuation methodologies: price to tangible net asset value (P/TNAV), price to earnings (PE), and price to operating free cash flow (P/Op FCF). The slight decrease in the target price is attributed primarily to market-to-market changes and a downward revision of future estimates.
HSBC's valuation remains grounded in an unchanged weighted average of the three methodologies mentioned. The cost of equity (COE) applied in the valuation is maintained at 8.6%, based on a risk-free rate of 3.75%, a blended equity risk premium of 4.4%, and a beta of 1.1. According to HSBC's analysis, the new target price suggests a 12% potential downside for Swiss Life Holding's shares.
The downgrade comes in the wake of Swiss Life Holding's Investor Day, where the company presented its financial targets for the years 2025 to 2027. These targets were deemed underwhelming by the analyst, which has seemingly influenced the decision to lower the rating to "Reduce." The Investor Day was anticipated to be a significant event that could potentially catalyze a change in the share price, but the outcomes fell short of expectations.
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