On Tuesday, Goldman Sachs initiated coverage on Fidelis Insurance Holdings (NYSE:FIHL) with a Neutral rating and a price target of $18.50. The investment firm sees an 8% potential upside for the global specialty (re)insurer, which is known for its focus on property and other short-tail risks and has a history of underwriting outperformance.
The analysis by Goldman Sachs centered on three main areas of debate regarding Fidelis Insurance Holdings. The first area examined the company's risk-adjusted return profile, with Goldman Sachs anticipating a long-term operating return on equity (ROE) of 10%-15%. This estimate is based on a through-cycle combined ratio—an indicator of underwriting profitability—of 86%-91%.
The second focus was on the pros and cons of Fidelis's operating structure and underwriting strategy. Goldman Sachs expressed a positive view on the company's underwriting strategy but noted that the current operating structure may put pressure on expenses. To maintain historical combined ratios, these expenses would need to be offset by improvements in the loss ratio.
Lastly, the firm addressed the state of the property insurance cycle and the sustainability of strong profitability. Goldman Sachs suggested that the market has moved past the peak of property insurance price increases.
Without significant insured losses from hurricanes in the upcoming months, the property (re)insurance industry is expected to continue exhibiting above-average combined ratios and ROEs in 2024. Looking ahead to 2025, the firm projected that global property catastrophe reinsurance pricing might decrease by low-to-mid-single digits, while primary insurance pricing could remain relatively stable, supported by increases for severe convective storm exposure.
In other recent news, Fidelis Insurance Holdings reported a significant 24.7% increase in gross premiums written in the second quarter. The company also initiated a $200 million share repurchase program, demonstrating its robust financial standing. However, Fidelis has discontinued underwriting intellectual property insurance due to inherent challenges.
Barclays has initiated coverage on Fidelis with an Equal Weight rating and a price target of $21.00, acknowledging the company's earnings potential and recent improvements in property pricing. Meanwhile, BMO Capital maintained its Market Perform rating on Fidelis, adjusting its earnings estimates through 2025 and introducing a 2026 operating EPS forecast. Keefe, Bruyette & Woods also maintained an Outperform rating on Fidelis, raising its 2024 and 2025 EPS forecasts.
InvestingPro Insights
Adding to the analysis by Goldman Sachs, InvestingPro data provides a broader financial perspective on Fidelis Insurance Holdings (NYSE:FIHL). Currently, the company has a market capitalization of approximately $2.06 billion and trades at a low earnings multiple with a P/E ratio of 4.7, which may indicate an undervalued stock according to traditional metrics. Despite a notable revenue decline of 36.1% in the last twelve months as of Q2 2024, the company has managed to maintain a gross profit margin of 23.95%, suggesting a degree of resilience in its operational efficiency. Additionally, Fidelis boasts a dividend yield of 2.29%, reflecting a commitment to returning value to shareholders.
InvestingPro Tips highlight that while analysts have revised their earnings downwards for the upcoming period, they still predict the company will be profitable this year. This is reinforced by the company's profitability over the last twelve months. However, it's important to note that they also anticipate a sales decline in the current year and expect net income to drop. For investors looking for more in-depth analysis, there are 6 additional InvestingPro Tips available for Fidelis Insurance Holdings at https://www.investing.com/pro/FIHL, providing a comprehensive outlook on the company's financial health and market positioning.
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