QBE Insurance Group Ltd (ASX: QBE) shares could be in the buy zone right now.
That's the view of analysts at Macquarie, which are feeling bullish on the insurance giant.
Let's dig deeper into why the broker is tipping this blue chip as a buy.
Why is Macquarie bullish on QBE Insurances shares?
Macquarie has been busy marking to market recent industry data and it bodes well for the company's performance.
According to the note, the broker believes that QBE had a strong first quarter for gross written premium growth. It said:
We forecast QBE's FY25 GWP growth at +4.3%. Our forecasts incorporate +5.5% GWP growth in constant currency compared with mid single digit guidance (CC). We estimate FX represents a ~120bps headwind to growth this year. We are mindful this year's Crop pricing was set lower than pcp, but await offshore comparatives for confirmation before adjusting for this in our modelling.
Macquarie also believes that the company's combined operating ratio (COR), a measure of profitability, is largely in line with expectations despite major weather events. It adds:
We forecast QBE's FY25 CoR at 92.6% which compares with guidance of 92.5%. Our forecasts include a further ~$40m reserve strengthening (~20bps); while catastrophes are in-line with QBE's guidance of $1,160m, although we note that QBE has likely had a disappointing start to the year with Californian Wildfires, Cyclone Alfred and broader flooding in QLD impacting the AU Farm and Crop portfolios.
Premium valuation justified
Macquarie also highlights that QBE shares are trading at a premium to peers. However, it feels that this is justified. It explains:
QBE is currently trading at a ~13.3% premium to weighted international peers on a 2-yr fwd PE, compared with a 3-yr historical average premium of ~1.2%. We believe this reflects greater exposure to investment income for QBE vs. peers, as well as multiples for UK peers pulling down the comparison.
In light of this, the broker has reaffirmed its outperform rating with a $23.00 price target. This implies potential upside of 7% for investors over the next 12 months. And with a 3.6% dividend yield expected in FY 2025, the total potential return stretches beyond 10.5%.
The broker then concludes:
Outperform. Given confidence in the NA [North American] turnaround story, we maintain our Outperform recommendation.
Overall, this could make QBE one to consider if you are looking for blue chips to strengthen your investment portfolio.
