CIBCFairfax Financial (Outperformer, $950 Price Target)
Fairfax plans to report earnings on Thursday, April 28 after market close, with a conference
call the following day at 8:30 a.m. ET (1-888-390-0867, passcode: FAIRFAX). We forecast
diluted EPS of negative US$0.95, generally in line with the consensus average at negative
US$1.37. This compares to EPS of US$33.64 in the prior quarter and US$28.91 one year
ago.
We expect volatile capital markets conditions to weigh on Q1 earnings. The combination of
rising interest rates and a drawdown in global equity markets should put downward pressure
on earnings and book value growth. This should be counterbalanced, to some degree, by the
previously deferred $400 million gain on Digit. We expect that both of these impacts have
been factored into consensus estimates, but there could be some variability relative to
expectations given the volatile market environment in Q1. The S&P 500 and MSCI World
Index generated a total return of -4.6% and -4.5%, respectively, in the quarter. On the
underwriting side, we are expecting positive margins in Q1, albeit to a lesser extent than Q4
(which benefitted from the impact of loss portfolio transfers and favourable reserve
development). Fairfax trades at a P/B multiple of 0.86x, which remains at the low end of the
peer group range.