Keep Positive on PartnerRe

Tags: pre
1 May 9:44pm
Posted by ZacksResearch
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PartnerRe Ltd.'s (PRE) 1Q08 operating earnings of $110.2 million or $1.98 per diluted share were substantially short of estimates. The results benefited from a moderate level of incurred losses, strong investment income growth, and a weakening U.S. dollar, which were more than offset by the softening in reinsurance pricing and higher costs.

We are maintaining our Buy recommendation on the shares of PRE, but with a lower six-month target price of $83 per share, based on the continued softening in pricing environment. After reviewing 1Q08 results, which were lower-than-expected, as a result of higher costs and lower policy prices, we are slightly moderating our FY08 and FY09 estimates to $9.79 per share and $10 per share, respectively.

At the current price, the shares of PRE trade at 1.05x its 1Q08 book value of $70.93 per share, well below the middle of its 10-year range, (which bottomed in 1999 at 0.89x and peaked in 2001 at 1.73x) and at a 17% discount to the peer group median (versus a 12% discount at the time of our last full report). We expect some expansion in the multiples in the coming quarters based on PRE's superior capitalization, strong underwriting results, and diversified portfolio (by product as well as geography), somewhat offset by an above average risk profile and financial leverage.

We expect PRE to continue delivering strong results for the coming quarters based on its excellent underwriting abilities, strong capitalization, solid ratings (S&P and A.M. Best recently affirmed the ratings) and reputation in the market, despite some softening in the non-life re-insurance pricing and higher costs, though we suspect that the current negative sentiment for the financials as a whole may somewhat weigh on the share price momentum. We are maintaining our Buy recommendation on the shares.

Kalyan Nandy contributed to this note.

Read the analyst note on PRE.



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