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Meadowbrook shares rise after upgrade

NEW YORK (AP) -- Shares of Meadowbrook Insurance Group Inc. rose Monday after analysts at Keefe, Bruyette & Woods upgraded the company's rating, saying finances are improving.

THE SPARK: KBW analysts Robert Farnam and Neil Cybart lifted Meadowbrook to "Outperform" from "Market Perform" and raised their price target on the stock, by $2 to $9.

The analysts said that Meadowbrook, which provides commercial insurance, has in recent months shored up its finances and shed unprofitable business, although it still has more work to do. They also believe that corporate ratings firm A.M. Best will not downgrade Meadowbrook in the near future.

THE BIG PICTURE: Meadowbrook had been under review for a downgrade by A.M. Best. Last week, the firm affirmed its "A-" financial strength on Meadowbrook's insurance subsidiaries, albeit with a negative outlook.

A.M. Best specializes in insurance companies, and its financial strength ratings gauge an insurer's ability to pay claims filed by policyholders. A downgrade could raise borrowing costs for Meadowbrook.

Meadowbrook, based in Southfield, Mich., had net income of nearly $12 million last year, down 73 percent from $43 million in 2011. That reflected in part losses from Superstorm Sandy in October.

Demand for insurance products, fluctuations in interest rates and losses from disasters remain as potential risks, the KBW analysts noted.

THE ANALYSIS: KBW upgraded Meadowbrook's rating to "Outperform" from "Market Perform" and raised its 52-week target price for the stock to $9 from $7. The analysts maintained their adjusted earnings estimates at 56 cents per share for 2013 and 90 cents per share for 2014, compared with an operating loss of 57 cents per share last year.

SHARE ACTION: Meadowbrook shares rose 26 cents, or 3.7 percent, to end at $7.29. They have traded between $5.21 and $9.31 in the past 52 weeks.