Global insurer QBE Insurance (ASX: QBE) was recently upgraded from 'neutral' to 'outperform' by broking house Credit Suisse, which appears to hold one of the more bullish views on QBE amongst brokers who cover the stock.
With QBE's share price down from a high of $17.53 in August to $14.52 on Tuesday, it would appear to be a good time to revisit the stock. Up until early August, QBE's stock price appeared to be on the mend, with the stock outperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the preceding 12 months, however the recent retraction in the share price means the current one-year share price performance of QBE is a rise of just 9.3% compared with the index which is up 21%.
Even more dramatic is the significant underperformance over the past three months, which has seen QBE's share price record a 10.3% fall, while the index has climbed 7.3%. There are at least two factors which have influenced the recent underperformance.
Firstly, QBE has been seen as a 'play' on the weakening Australian dollar due to its significant global operations and foreign currency earnings. However with the Australian dollar strengthening by 3% in the past three months this foreign exchange momentum has been weakened.
Secondly, the half-yearly result announced in mid-August (QBE has a December year-end) disappointed investors — particularly the weak results from the North American division and also the board's decision to cut the dividend.
QBE hasn't been alone in its underperformance over the past three months. The other major insurers, Insurance Australia Group (ASX: IAG) and Suncorp (ASX: SUN), have both also underperformed the S&P/ASX 200 Index over this timeframe. However their performance over the past 12 months is exceptional with IAG and Suncorp's shares up 31.7% and 40.6% respectively.
Foolish takeaway
QBE does face a unique set of challenges largely due to its heritage of acquisitive growth, which has left the insurer with a sprawling empire of businesses across the globe. Under the guidance of recently installed CEO John Neal, QBE is successfully implementing a transformation program which should leave the insurer leaner, more efficient and with annual cost savings of over $250 million.
