Keefe Bruyette & Woods analyst Christopher Campbell took over coverage of Argo Group International Holdings Ltd., upgrading the company to an outperform rating from market perform, largely as a result of the upside in its U.S. business.
The rating is a reflection of the company's improved year-over-year commercial pricing trends, investment income potential from higher interest rates, stable underwriting results and lower earnings leakage as a result of legacy run-off lines, Campbell wrote in a Dec. 27 research report.
Campbell also expects the company to focus its efforts on certain lines of business such as other liability and fidelity and surety that have performed better than lines such as commercial auto and commercial multi-peril.
Looking ahead, the company's continued outperformance of consensus estimates, largely as a result of Argo's "more profitable, less volatile and more consistent" underwriting results, is expected to continue throughout 2018 and boost the company's shares, Campbell wrote.
For the last 20 years the company has traded at a "significant" discount compared to its peers in the specialty business, which has likely been the result of continued reserve issues in the company's former risk management business, the analyst wrote. Now that the company has reduced its exposure to the business, Campbell said the company's valuation discount will likely dissipate over time.
The analyst set a price target of $71 for the company.