On Friday, UBS updated the financial outlook for Assured Guaranty (NYSE: NYSE:AGO), increasing the price target significantly to $102 from the previous $64 while maintaining a Neutral rating on the stock. The adjustment reflects a positive assessment of the company's fourth quarter 2023 performance and growth prospects.
The revised price target is based on several key factors, including Assured Guaranty's better-than-expected earnings for the fourth quarter of 2023 and an increase in book value per share.
Additionally, the company's enhanced share buyback program, higher earnings from its ownership stake in Sound Point, and reduced risk from potential additional charges related to Puerto Rico have all contributed to the reassessment.
UBS has utilized a sum-of-the-parts (SOTP) valuation approach to determine the new price target. This method involves a 90% price to book multiple on a 12-month forward operating book value per share (BVPS) for the insurance operation, up from the previous 80%.
The value of Assured Guaranty's ownership in Sound Point is also factored in, using a 12 times next twelve months (NTM) equity earnings pick-up. From this, estimated net debt per share is subtracted, which accounts for the balance sheet debt minus holding company cash, short-term investment, and dividend capacity from the insurance operations.
UBS's analysis indicates that Assured Guaranty's shares are trading at approximately 0.85 times the estimated operating BVPS, suggesting that the stock is fairly valued when considering the company's near-term return on equity (ROE) prospects. The firm's operating ROE estimates for 2024 and 2025 are 5.7% and 5.9%, respectively.
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