The QBE Insurance Group Ltd (ASX: QBE) share price surged after a leading broker upgraded the stock while others lifted their valuation on the stock.
The QBE share price soared 6% to its highest level this calendar year at $9.52 during lunch time trade while the S&P/ASX 200 Index (Index:^AXJO) was flat.
QBE share price upgraded to “buy”
A recommendation upgrade by UBS could explain the QBE share price outperformance. The broker upped its rating on the stock to “buy” from “neutral” as it believes the bad news is more than reflected in the current share price post QBE’s results.
“While a US$1.5bn loss justifies ~40% share price underperformance over the last 12 months, the vast majority of the provisions taken by QBE (US$655mn for COVID-19 claims) are for currently unreported claims,” said the broker.
“Further QBE has provisioned its BI claims to a level that reinsurance protects from any potential developments from here.”
UBS also pointed out that the underlying trends in QBE’s latest profit announcement was better than originally thought. The broker increased its price target to $10.25 from $9 a share, and it wasn’t alone.
QBE price target lifted
Citi reiterated its “buy” rating on the stock and increased its target price from $10.40 to $10.95 a share. Goldman Sachs also held its “buy” rating on the QBE share price and raised its price target from $10.24 to $10.73.
Macquarie not only lifted its fair value on QBE to $9.40 from $7.70 a share, but it also upgraded its recommendation on the stock to “neutral” from “underperform” as it believes QBE’s outlook has turned more positive.
Stronger operating leverage
It noted that QBE is well placed to benefit from rising insurance premiums. Its profit margins are also increasing from a low base and that means it has better earnings leveraged than its global peers.
“Although no official FY21 guidance was provided, the outlook for margins, premium rates and now FX are all positive and should provide support for the stock until a new group CEO is appointed,” the AFR quoted Macquarie as saying.