In a report published Thursday, Morgan Stanley analyst Kai Pan reiterated an Overweight rating on XL Group PLC (NYSE: XL), but removed the $39.00 price target.
In the report, Morgan Stanley noted, “XL's global diversified insurance franchise allows the company to access markets with favorable returns. A clearer path to 10%+ ROE: The Life Re divesture eliminates a long-tail risk that has consumed ~20% of XL's capital and refocuses the attention of management and investors on XL's core P&C operation. Improving underwriting margin and accretive capital management drive ROE expansion toward 10%.
"Strong balance sheet with $700m of excess capital (~7% of equity) provides downside protection and helps facilitate higher shareholder returns through organic growth and buybacks/dividends. Discount to Book valuation provides compelling risk-return. Valuation at ~90% of BV does not reflect XL's 10%+ ROE potential and provides +19% upside to our $39 price target.”
XL Group PLC closed on Wednesday at $32.77.
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