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Sandler O'Neill sees higher earnings potential in Navigators

Sandler O'Neill & Partners analyst Paul Newsome upgraded Navigators Group Inc. to "buy" from "hold," writing that the company's results for the first half of 2018 suggest higher earnings potential.

Newsome believes that Navigators' move to exit "difficult" businesses such as its international property and North American property businesses has positive impact on its earnings power. He wrote that the company's rising investment returns and potential benefit from lower U.S. corporate tax rates could also boost earnings.

Additionally, Newsome wrote that Navigators is seeing a "relatively good" pricing environment, noting that the company is booking renewal price increases despite its significant exposure to the "very competitive" Lloyd's of London market.

While corporate actions suggest that Navigators intends to remain independent, Newsome said the company's size and business mix would be attractive to another insurer.

Newsome raised his price target on the company to $68 from $60. He also increased his EPS projections to $3.87 from $3.00 for 2018 and to $3.75 from $3.00 for 2019.