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On Monday, Piper Sandler adjusted its outlook on ProAssurance Corporation (NYSE:NYSE:), reducing the stock price target to $15 from the previous $16 while keeping an Overweight rating on the stock. The adjustment follows ProAssurance’s report of a decline in net premiums written, which fell 7.6% to $195.0 million.
This figure is notably lower than the flat performance anticipated by Piper Sandler at $211.1 million and the consensus estimate of $213.2 million, as compared to the fourth quarter of 2022.
The firm interprets the decrease in premiums as a strategic move by ProAssurance to divest from unprofitable segments. This interpretation supports the continued Overweight rating, which is influenced by the stock’s valuation at 57% of its $21.82 per share book value.
Piper Sandler utilizes a benchmark suggesting that stocks typically trade below 70% of book value if the market perceives a need for substantial reserve charges on the company’s balance sheet.
The analyst firm posits that stocks trading between 70% of book value and full book value are viewed by investors as unlikely to yield satisfactory returns on equity. In the case of ProAssurance, there is uncertainty regarding the company’s ability to deliver adequate return on equity.
Nevertheless, Piper Sandler does not believe that ProAssurance’s balance sheet is significantly impaired to warrant a major reserve charge. This outlook underpins the rationale behind maintaining the Overweight rating despite the lowered price target.
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