We are upgrading our recommendation on the shares of Everest Re Group's (RE) following the first quarter's better-than-expected results. The company also posted a net profit as opposed to a net loss in last year's quarter. The increased earnings resulted from lower claims expenses and increased revenue.
We remain optimistic about management's expectations of favorable reinsurance market pricing led by the last year's cat loss events. Any such development augurs well for the company, which is a big player in the reinsurance market. The company is also aggressively expanding its overseas business, thereby contributing significantly to the overall top line in recent years.
Moreover, given its conservative financial leverage measures, the company maintains strong financial flexibility with the ability to effectively manage its capital mid-market cycles. Our six-month target price of $122.00 equates to 10.5x our earnings estimate for 2012. With an annual dividend of $1.92 per share, this price target implies an expected total return of 20.5% over that period.
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