After A 20% Run In 6 Months, How Much Is Too Much To Pay For Validus Shares?

Deutsche Bank downgrades Validus Holdings, Ltd. (NYSE: VR) to Hold from Buy following its nearly 20 percent rally in the past six months. The brokerage emphasized that the rating change doesn't reflect a change in the operating outlook despite “weak” fourth-quarter results and the ongoing property cat pricing declines.

Analyst Commentary

“We continue to believe that Validus will earn its cost of capital, but the question has become at what price should investors be willing to pay for these returns. At 1.3x year-ahead diluted tangible book value we no longer see it as an attractive for new money investment,” analyst Joshua Shanker wrote in a note.

Shanker also trimmed his estimates for 2017 and 2018 on greater-than-expected underwriting pressures in the Talbot segment and slower pace toward underwriting profitability for Western World.

“Nonetheless, we reiterate the company’s message that the general business trends for Western World are pointed in the right direction,” Shanker added.

The analyst, who raised his price target by $1 to $56, believes the company should continue to benefit from the seasonal reinsurance trade, and defensively positioned against inflation risk and a market slump.

Shares of Validus closed Friday’s trading at $57.73. The $56 price target employs a 1.25x diluted tangible book value per share.