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Citi downgrades Scor stock on concerns over earnings and solvency challenges

EditorEmilio Ghigini
Published 07/31/2024, 03:31 AM
SCRYY
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On Wednesday, Citi adjusted its stance on Scor SE (SCR:FP) (OTC: SCRYY) stock, moving its rating from Buy to Neutral and revising its price target to EUR21.40, down from the previous EUR33.70. The reevaluation by the financial services company comes amid growing concerns over the uncertainty surrounding the reinsurance group.

Citi highlighted multiple challenges facing Scor SE, including potential unexpected losses in property and casualty reinsurance, adverse trends in longevity, particularly within the U.S. mortality segment, and possible changes to the solvency model expected later in the year. Additionally, an ongoing arbitration case adds to the firm's risk profile.

The analyst from Citi expressed reservations about the stock's future performance despite what might appear as an attractive valuation at 5.1 times the estimated earnings per share for 2025 and a dividend yield forecasted at 9.2% for 2024.

The concerns are relatively recent developments, and while Scor's shares have already experienced a significant drop, approximately one-third from recent highs, the analyst finds the current risk/reward balance unfavorable.

In light of these factors, Citi has significantly reduced the target price for Scor SE by 40%. This decision reflects the increased earnings volatility that could result from life and health reinsurance contracts becoming burdensome or nearing that point under the new accounting standard, IFRS 17.

The downgraded outlook and new price target are a response to the complex issues Scor SE is currently facing, which could impact its financial stability and share performance in the near future.

In other recent news, HSBC has revised its assessment of Scor SE, downgrading the stock from a Buy to a Hold status, and reducing the price target to €33. This decision follows Scor SE's report of unfavorable results, driven by a surge in US mortality claims in the first quarter. The company's Life & Health Reinsurance segment was particularly affected, although the firm anticipates a potential return to normal claim levels later in the year.

HSBC's analyst expressed concerns about whether this increase in claims is a structural issue. While Scor SE could implement corrective actions, such as renegotiating with cedants and repricing, these steps are seen as reactive and may not resolve the situation as swiftly as in the Property & Casualty Reinsurance business.

As Scor SE continues to identify and address these underlying issues, they are expected to exert ongoing pressure on the company's earnings, which, until resolved, could significantly impact the company's share price. These are the recent developments concerning Scor SE.

InvestingPro Insights

Scor SE (OTC: SCRYY) has been navigating a challenging landscape, as reflected in Citi's recent rating adjustment. To provide further context on the company's financial health, InvestingPro data shows a market capitalization of $4.07 billion and a Price/Earnings (P/E) ratio of 19.09, which is in line with the industry average, suggesting a reasonable valuation in terms of earnings.

From an investor's standpoint, Scor SE's dividend yield stands at an attractive 6.09%, indicating a commitment to returning value to shareholders. This is reinforced by InvestingPro Tips, which note the company's significant dividend payouts. Additionally, while the company's gross profit margins are considered weak at 6.93%, Scor SE has a strong free cash flow yield, which is a positive sign for potential investors looking for cash-generating investments.

Despite a price decline of over 24% in the last three months, analysts remain optimistic about the company's profitability, with expectations of Scor SE being profitable in the current year. For those seeking a deeper analysis and more InvestingPro Tips, consider exploring the detailed insights available on the InvestingPro platform. Additionally, readers can use the coupon code PRONEWS24 to receive up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 7 additional InvestingPro Tips listed, subscribers can gain a more comprehensive understanding of Scor SE's potential investment value.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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