We maintain our Hold recommendation on shares of Everest Re Group, Ltd. (RE). The company intends to release its 2Q08 earnings after market close on Jul 21, 2008.
To date, the casualty segment continues to experience rate pressure from increased competition, demands for higher ceding commissions and relaxed returns, with ceding companies retaining more net business. Competition is much tougher in the US than in other markets internationally.
However, the company continues to benefit from strong underwriting skills, a multi-operating platform, vast geographic coverage and strong financial strength ratings. Once the company establishes a representative office in Brazil, we would then expect RE to capitalize on the legal changes in that insurance marketplace, considering the economic growth expected for Brazil in coming years.
On Jan 17, 2008, the company completed its asbestos reserve study and concluded with a net pretax charge of $311 million related to asbestos loss reserve strengthening. Moreover, the company continues to rebalance its property portfolio, particularly within peak catastrophe zones, including the Southeast U.S., Mexico and Gulf of Mexico.
Prior to the release of the 2Q08 results, we have lowered our FY08E and FY09E EPS to $12.08 per share and $12.90 per share, respectively, from $12.58 per share and $13.00 per share previously. The shares of Everest Re trade at 0.86x its 1Q08 book value of $91.01 per share.
RE's valuation has continued to moderate from the 1.5x level exhibited nearly a year and a half ago, with Everest's 5-year average ROE remaining below the peer group average. Our new six-month price target of $84.70 per share, incorporates a peer multiple of 0.88x to our estimated Dec 31, 2008 book value of $98.50 per share.
Read the full analyst report on RE
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