On Friday, Berenberg raised the price target for Zurich Insurance Group AG (ZURN:SW) (OTC: OTC:ZURVY) to CHF602.00, up from CHF529.00, while maintaining a Buy rating on the stock. The adjustment follows Zurich Insurance's unveiling of its new three-year plan for 2025-2027 on November 21.
The plan sets forth several ambitious targets, including a core earnings per share (EPS) compound annual growth rate (CAGR) of over 9%, a core return on equity (ROE) of over 23%, and cumulative cash remittances of over $19 billion for the three-year period. These goals represent a step up from the previous three-year plan (2022-24), which aimed for 8% EPS growth, over 20% ROE, and more than $13.5 billion in cumulative cash remittances.
During the presentation, Zurich Insurance expressed confidence in its ability to meet these new targets, suggesting they might even be conservative estimates. Berenberg highlighted three specific areas where the targets appear modest. First, with a projected cash remittance of $7 billion in 2024, including exceptional items, the underlying run-rate seems to be on track for achieving the new target.
Second, the target for over 23% ROE is seen as ambitious, yet more than 40% of Zurich's earnings come from two units—protection life and Farmers—that require minimal capital and are estimated to have an ROE of over 25%. Lastly, the over 9% core EPS CAGR target is considered less challenging, particularly as it does not account for buybacks, which could potentially reduce the share count and further increase EPS growth.
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