Beazley‘s (LSE:BEZ) an under-covered FTSE 100 stock. It operates in insurance — certainly not the most exciting of industries — but it’s deserving of our attention.
The company focuses in writing speciality-risk insurance and reinsurance business. It was listed in 2006 and also has operations in the US.
The stock’s up 40% over the past two years and, according to Wall Street analysts, it could go much further.
Wall Street’s consensus
Beazley’s US stock trades for $8.65, the same as the UK stock when adjusted for currency. However, Wall Street thinks this is very cheap.
Analysts there have given the stock an average price target of $12.46. That represents a 44.2% upside versus the current share price. This makes it one of the most undervalued stocks on the UK’s blue-chip index, according to those analysts.
There are currently seven Buy ratings, no Hold ratings, and no Sell ratings.
What’s so great about Beazley?
Analysts are bullish on Beazley for several reasons. They see it as the standout choice in the insurance sector, pointing to its strong operational performance and impressive outlook as key factors.
Despite this strong performance, analysts have pointed out that Beazley’s shares are currently trading at only 1.2-1.4 times the estimated 2024 price-to-book (P/B) ratio.
This is relatively low given the company’s very strong return on equity (ROE) of 21% and the potential for double-digit yields.
RBC, in particular, highlighted these strengths and used them to justify their optimism. Analysts at the Canadian bank suggested that the insurance group should be trading closer to 1.8 times P/B.
In turn, this led the bank to increase its price target to 975p ($13.56). That currently represents a 56.9% premium to the current share price.
Analysts’ forecasts can be wrong. This is occasionally due to unforeseen economic shifts, changes in industry dynamics, misjudged company strategies, or external events such as geopolitical tensions or natural disasters.
This is especially the case in the UK where shares are broadly undervalued compared with their US counterparts.
Remember, UK stocks have help something of a fear factor for US investors, noting Brexit and poor economic growth. This remains a concern but, potentially, one that’s passing.
Likewise, the company’s US management has pointed towards political risk impacting businesses in 2024. If it underestimates potential disruption and violence, this represents a major issue for the business.
It’s got momentum
The stock’s outperformed the FTSE 100 over the past two years. This has been partially driven by the company’s performance, but also by a broad recognition that it was too cheap.
Beazley gained more momentum in April after a solid set of results. Insurance written premiums (IWP) were up 7% at $1.48bn, matching the full-year target growth rate, while investments and cash surged 19% to $10.83bn.
Moreover, Beazley’s been undertaking a strategic share repurchase programme, with its latest transaction on 21 June.
This action is part of a broader initiative announced on 8 March, through which Beazley has acquired a total of 19,296,188 shares for cancellation.
The share buyback programme, strong operational performance, and a broad understanding that the stock has been underappreciated, all seem to be pushing the stock higher.
As I often like to point out, momentum is one of the best indicators of forward performance. It’s certainly a stock to watch.
