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If you are wondering whether RenaissanceRe Holdings is offering good value at its recent share price, this article will walk through what the current numbers actually say.
The stock recently closed at US$269.92, with returns of a 1.2% decline over 7 days, a 3.1% decline over 30 days, a 0.9% decline year to date, 5.5% over 1 year, 44.0% over 3 years and 81.1% over 5 years.
Recent price moves have been accompanied by ongoing attention on the reinsurance sector and RenaissanceRe’s position within it. This has included headline coverage of how insurers are managing catastrophe exposure and capital levels, and this backdrop helps frame why investors are reassessing what they are willing to pay for the shares.
Our valuation work gives RenaissanceRe Holdings a 5 out of 6 valuation score. Next we will compare different valuation methods before finishing with a more holistic way to think about what a fair price might look like.
The Excess Returns model evaluates how much profit a company is expected to earn on its equity above the return that shareholders require, then capitalizes those additional profits into an estimated per share value.
For RenaissanceRe Holdings, the model uses a Book Value of $231.23 per share and a Stable EPS of $41.73 per share, based on weighted future Return on Equity estimates from 7 analysts. The Average Return on Equity is 14.39%. The Cost of Equity is set at $20.17 per share, which implies an Excess Return of $21.56 per share.
The analysis also assumes a Stable Book Value of $289.98 per share, again using weighted future Book Value estimates from 7 analysts. Using these inputs, the Excess Returns framework arrives at an intrinsic value estimate of about $873.37 per share.
Compared with the recent share price of US$269.92, this intrinsic value implies the stock is 69.1% undervalued according to this model.
For a profitable company like RenaissanceRe Holdings, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. It links directly to what the business is currently earning rather than to its assets or revenue alone.
What counts as a reasonable P/E depends on what the market expects for future growth and how much risk investors see in those earnings. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.
RenaissanceRe Holdings currently trades on a P/E of 7.45x. That compares with an Insurance industry average P/E of about 12.59x and a peer group average of 15.71x. Simply Wall St’s Fair Ratio framework estimates a P/E of 11.22x for RenaissanceRe Holdings, based on factors such as its earnings profile, industry, profit margins, size and company specific risks.
This Fair Ratio can be more informative than a simple peer or industry comparison because it adjusts for those business specific drivers rather than assuming all insurers should trade at similar levels. With the current P/E at 7.45x versus a Fair Ratio of 11.22x, the shares appear undervalued on this metric.
Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, which are simple stories you build around a company that connect your view of its future revenue, earnings and margins to a forecast and then to your own fair value. On Simply Wall St’s Community page you can do this for RenaissanceRe Holdings by, for example, setting up a more cautious Narrative closer to the lower analyst price target of US$237.00, or a more optimistic one nearer the US$422.00 high. You can then see in real time how your Fair Value compares with the current share price as news and earnings updates flow through and automatically adjust the numbers behind your story.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
