Motley Fool Australia

Top broker thinks the embattled QBE share price is ready to bounce

share price jump

The QBE Insurance Group Ltd (ASX: QBE) share price crash could be bottoming out with Morgan Stanley predicting that the stock is set to outperform in the near-term.

The QBE share price suffered its fourth consecutive trading day of losses on Wednesday when it shed 0.9% to a three-month low of $11.77.

This means the international insurance provider has underperformed over the past three months with its share falling 7% when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up nearly 4%.

Even its peers are performing better. The Suncorp Group Ltd (ASX: SUN) share price is down 3% following the recent departure of its CEO and the Insurance Australia Group Ltd (ASX: IAG) share price is 1.4% in the black over the same period.

Is the QBE share price oversold?

The sharp sell-off of QBE has gone too far, according to Morgan Stanley, who believes that there is a 70% to 80% chance that the stock will rise relative to the market over the next 60 days.

“This is because the stock has traded off recently, making short term valuation much more compelling. US floods present a risk to Crop performance,” said the broker.

“However, market fears look over done. With Crop NEP [net earned premium] of ~US$900m, every 1% deterioration in the Crop COR [combined operating ratio] is a ~1% hit to QBE earnings.

“Guidance assumes target Crop COR of ~92%. With the stock down ~9% in recent trading (vs. ASX200, broadly flat), risks look priced in.”

Broker rates QBE a “buy”

However, the broker admits that reliably evaluating crop performance is complicated as there are several factors that can impact on the profitability of QBE’s crop insurance business. This includes yield, price and positive selection of risks captured by QBE vs. the US Government crop scheme.

What’s more reassuring to QBE shareholders is that any loss from this division is unlikely to be repeated in FY20, while insurance claims from catastrophes and natural disasters this year has been relatively benign.

Morgan Stanley has an “outperform” recommendation on the stock with a price target of $13 a share.

QBE isn’t the only stock that stock experts think could outperform in the coming months. The experts at the Motley Fool are bullish on two ASX stocks that are leading the charge into the digital payments space.

Click on the free link below to find out what these stocks are and why they should be on your watchlist.

Forget what just happened. We think this stock could be Australia's next MONSTER IPO...

One little-known Australian IPO has doubled in value since January, and renowned Australian Moonshot stock picker Anirban Mahanti sees a potential millionaire-maker in waiting...

Because 'Doc' Mahanti believes this fast-growing company has all the hallmarks of genuine Moonshot potential, forget 'buy now pay later', this stock could be the next hot stock on the ASX.

Returns as of 6th October 2020

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Follow him on twitter @brenlau.

The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles…