National BankThat was fast. They just finished raising their target to $2200 and now we can add another $200. GLTA After a “nice” third-quarter beat, National Bank Financial analyst Jaeme Gloyn maintained Fairfax Financial Holdings Ltd. as his top pick for 2024, citing its “solid” operating income outlook, valuation upside and potential index inclusion catalysts.
“Q3-24 results reaffirm our confidence in FFH’s ability to consistently deliver mid-teens (or better) ROE [return on equity] over the next several years,” he said.
On Thursday after the bell, the Toronto-based financial holding company reported diluted earnings per share of $42.62, exceeding both Mr. Gloyn’s $34.06 estimate and the consensus forecast of $34.06. He said the results translate to “impressive” annualized ROE of 17 per cent that drove a 5-per-cent quarter-over-quarter in book value per share to $1.033.
“In addition, adjusted operating income from the P&C Insurance business of $1,137-million increased 18 per cent year-over-year and beat our $755-million estimate,” he added. “FFH reported a combined ratio of 94% that easily beat the street at 98 per cent, and excluding catastrophes came in at an exceptional 87 per cent. Net investment gains (incl. realized and unrealized) of $1,287-million beat our $1,151-million forecast. Highlighting FFH’s somewhat positive bias to a lower rate environment as gains on fixed income assets exceeded losses on insurance liabilities.”
He emphasized Fairfax’s setup “remains strong for ongoing re-rate.”
“We believe the combination of 1) solid underwriting results with a combined ratio of 94 per cent vs. the street 98 per cent; 2) consolidated interest and dividend income that remains at a run rate of $2.4 billion; 3) outperformance from associates and consolidated investments; and 4) solid net investment performance supports our view Fairfax will deliver consistent profitability (ROE in the mid to high teens) over the next several years,” said Mr. Gloyn. “Moreover, FFH continues to hold $2 billion in cash at the holdco and $2.3-billion in excess capital at its insurance subsidiaries to deploy in ROE accretive transactions (e.g., buybacks or repurchase of minority interests in those insurance subsidiaries). We firmly believe FFH merits a higher valuation than the current trading multiple.”
That led him to raise his target for Fairfax shares to $2,400 from $2,200 with an “outperform” recommendation (unchanged). The average is $2,045.65.