Goldman Sachs Adds XL Group plc (XL) to Conviction Buy List

Goldman Sachs upgraded XL Group plc (NYSE: XL) from Neutral to Conviction Buy with a price target of $44.00 (from $40.00), suggesting upside of 12%. Analyst Michael Nannizzi pointed out the company has plenty of options to enhance shareholder returns.

"We believe XL shares are well positioned given (1) Book value accretion above peers: we expect buybacks, which are especially accretive for XL at sub-book value, to rise over the next 12-18 months, and (2) ROE expansion: XL’s 2015 ROE of 7.3% is lower than the peer average of 10% today but we expect that will reverse by 2017. XL trades at 1x book value vs. 1.2x for peers, while we expect a 2017 ROE of 9.8% for XL vs. 9.2% for peers. Our 12-month price target is $44, which implies approximately 13% upside vs. 2% average downside for our remaining coverage," said Nannizzi.

"XL stock has lagged other hybrid/reinsurers since the announcement of the Catlin acquisition, in our view, primarily as investors have sought ‘the next’ potential acquisition candidate; as a result, we believe XL valuation screens attractive on a relative basis. We believe a combined XL-Catlin is big enough to shrink without losing relevance, and its low relative valuation makes buybacks attractive. If reinsurance conditions soften further, we believe XL could shift further towards insurance business and free up even more capital for deployment purposes and by reducing reliance on reinsurance for profitability could benefit even further from multiple expansion," added the analyst.

For an analyst ratings summary and ratings history on XL Group plc click here. For more ratings news on XL Group plc click here.

Shares of XL Group plc closed at $39.33 yesterday.

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