Fairfax Financial has a 31% upside, Scotia Capital says

High-flying stock Fairfax Financial (Fairfax Financial Stock Quote, Chart, News, Analysts, Financials TSX:FFH) still has meaningful upside, despite a big 2023 run.

That’s the assessment of Scotia Capital analyst Phil Hardie.

As reported by The Globe and Mail October 31, Hardie, in a research update to clients, reiterated his “Sector Perform” rating and one-year price target of $1500 on FFH. With the stock closing October 30 at $1146.60, the target price implied a return of 31 per cent at the time of publication.

Hardie, who assesses FFH as a “Top Pick” nonetheless says some investors might turn away from the stock when building a defensive portfolio.

“Fairfax has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less-defensive play than more traditional publicly listed insurers,” he wrote. “At this stage of the market cycle, this likely provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession, and upside potential when markets recover. There have been significant changes at Fairfax that we believe investors have yet to fully recognize.”

FFH will report its third quarter, 2023 results on November 2.

In the company’s second quarter results, reported on August 3, the company posted net earnings of $734.4-million, up from negative $32.0-million in the same period a year prior.

“During the second quarter we continued to build on our great start to 2023, with our property and casualty insurance and reinsurance operations producing adjusted operating income of $913.5 million ($1,526.4 million including discounting, net of risk adjustment on claims of $612.9 million), reflecting increased interest and dividends, strong insurance underwriting results and stable share of profit of associates,” CEO Prem Watsa said. “Our underwriting performance in the second quarter of 2023 continued to produce favourable results, with growth in gross premiums written of 10.0% and net premiums written of 8.4%, primarily reflecting new business and continued incremental rate increases in certain lines of business. We achieved underwriting profit of $337.5 million on an undiscounted basis and a consolidated combined ratio of 93.9% for the quarter.”