Among small-cap insurance stocks, FBR Capital Markets & Co., analyst Randy Binner’s top pick is National General Holdings Corp (NASDAQ:NGHC). He says the stock could see as much as 50% upside by 2017.
“We see both earnings and multiple expansion which, if you put together, could be another 50% upside in the stock over the next couple of years,” Binner says. “Now, we publish one-year price targets, so my one-year price target is $25, which will be 27% upside, but if I extended that thesis out to 2017 numbers, it would then go higher.”
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Binner says National General is trading at a discount to the peer group. While names like Progressive (NYSE:PGR), Allstate (NYSE:ALL), Infinity (NASDAQ:IPCC), Mercury (NYSE:MCY) generally trade around 14 or 15 times earnings, Binner says National General is trading at 11 times earnings.
“My belief is that that discount of the peer group is because it is not on people’s radars,” he says. “We have a lot of confidence that it will get a pure multiple on prior premiums some day, and so I get multiple expansion there that you just don’t find very often in a pretty mature industry.”
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