On Monday, BMO Capital Markets adjusted its outlook on Fairfax Financial Holdings (FFH:CN) (OTC: OTC:FRFHF) shares, raising its price target to C$1,800, an increase from the previous C$1,650, while maintaining an Outperform rating on the company's stock.
The revision comes despite a slight earnings miss in the first quarter of 2024, which BMO attributes to a lower-than-expected performance from associates and non-insurance companies.
The analyst from BMO Capital noted that while the first quarter of 2024 did not entirely meet their expectations, the shortfall was mainly due to weaker earnings contributions from non-insurance operations.
In response, BMO has modestly reduced its earnings per share (EPS) estimates by 5% to adopt a more cautious stance on the future earnings from these segments. However, the firm has left the primary drivers of Fairfax's business unchanged.
Importantly, the report highlighted that the core aspects of Fairfax Financial's business, specifically underwriting income and interest and dividend income, showed improvement.
This positive development supports the company's transition towards an operating earnings-focused model, which is expected to offer better visibility and command a higher earnings multiple.
In light of these factors, BMO Capital has increased the target multiple for Fairfax Financial Holdings. The new price target reflects the analyst's confidence in the company's ability to continue generating robust underwriting and investment income, which are seen as key drivers of Fairfax's future growth and valuation.
InvestingPro Insights
The recent update from BMO Capital Markets on Fairfax Financial Holdings aligns well with some of the key metrics and insights from InvestingPro. Fairfax Financial is currently trading at a low earnings multiple with a P/E ratio of 7.29 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 7.35. This suggests that the stock may be undervalued, especially when considering its prominent role in the insurance industry—an InvestingPro Tip that further solidifies the company's standing.
InvestingPro Data also shows a solid revenue growth of 7.97% for the last twelve months as of Q1 2024, indicating a healthy expansion in its core business. Additionally, with a dividend yield of 1.33% and a remarkable history of maintaining dividend payments for 23 consecutive years, Fairfax offers a degree of reliability for income-focused investors. These data points, combined with the fact that the company's liquid assets exceed its short-term obligations, provide a reassuring financial stability perspective.
InvestingPro further highlights that analysts predict Fairfax will be profitable this year, which is consistent with BMO's positive outlook despite the recent earnings miss. For investors seeking more detailed analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/FRFHF, including expectations of net income and the company's performance over various time frames. To access these insights and more, readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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