Why is the Suncorp share price cratering today?

A broker has downgraded the insurance and banking group.

| More on:
Codan share price A dismayed kid dressed as a scientist stands with his back to a rocket crashed into the ground

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Suncorp share price is currently the worst performer on the ASX 200 today after it got downgraded by a broker
  • Morgan Stanley warned that Suncorp is one of the companies most exposed to the structural risks stemming from climate change
  • The broker slashed its valuation on the shares and suggested Suncorp will have to slump another 9% before it reaches fair value

The Suncorp Group Ltd (ASX: SUN) share price is tanking today after a top broker downgraded it due to "structural" risks from climate change.

Shares in the insurance and banking group have so far tumbled 5.12% to a three-week low of $11.50.

This makes the share the worst performer on the S&P/ASX 200 Index (ASX: XJO) at the time of writing.

For comparison, the Insurance Australia Group Ltd (ASX: IAG) share price and QBE Insurance Group Ltd (ASX: QBE) share price are also falling, by around 3% and 2% respectively.

What's up with the Suncorp share price?

No catastrophe (CAT) insurer can escape the impact of climate change. But the Suncorp share price could also be taking a beating after Morgan Stanley cut its price target with an "underweight" rating, according to the Australian Financial Review.

The broker reckons that Suncorp and IAG are more exposed to catastrophic weather events than QBE. QBE is a more diversified business.

Morgan Stanley said:

Investors have been discounting climate change and CAT risks as cyclical for insurers, but we think they are structural as our new analysis shows.

Consensus ratings are heavily OW [overweight] on both SUN and IAG, leaning on both stocks being cheap because they have de-rated in the past three years, and also ascribing the ongoing over-runs on CAT costs as cyclical one-offs or sheer bad luck.

We would say that just because SUN and IAG have de-rated recently, does not mean that SUN and IAG are cheap enough.

When cheap isn't cheap enough

The Suncorp share price has de-rated by around two times price-to-earnings (P/E) points to circa 14 times consensus P/E. The IAG share price shed around 3 times P/E points to 15 times consensus.

But despite the big sell-off today, there is further downside risk to the Suncorp share price, according to Morgan Stanley.

The broker lowered its 12-month price target on Suncorp to $10.50 from $12.50 a share. This implies that the Suncorp share price has to fall another 9% before reaching fair value.

The Suncorp share price vs. the IAG share price

The IAG share price was also downgraded by the broker. Morgan Stanley trimmed its 12-month price target to $3.70 from $4.05 a share.

The reason why IAG is fairing a little better is probably because the broker kept its "equal-weight" recommendation on the shares.

With the big loss in the Suncorp share price today, it is now down 0.2% since the start of 2022. At least that's a bit better than the IAG share price, which has shed almost 2% of its value since the start of January.

In comparison, the ASX 200 is nursing a loss of 4.6% for the calendar year.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »