BMO Capital analyst Jack Matten has maintained their bearish stance on LMND stock, giving a Sell rating on August 13.
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Jack Matten has given his Sell rating due to a combination of factors impacting Lemonade’s financial outlook. Despite Lemonade’s ability to grow with less capital compared to its peers, the current stock price seems to reflect an overly optimistic scenario where the company can scale profitably in the competitive auto insurance market. Matten notes that while Lemonade is unlikely to require another equity capital raise, its reliance on a captive Cayman entity for reinsurance presents potential risks, especially if reinsurance appetites decline.
Furthermore, Lemonade’s auto insurance segment, crucial for achieving underwriting profitability, still faces challenges. Although there has been some improvement in the auto loss ratio, it remains significantly higher than the industry average, indicating competitive pricing pressures. Additionally, the company’s valuation appears stretched, requiring a best-case scenario to justify current levels, which includes assumptions of sustained high growth and profitability that have yet to be demonstrated. These factors collectively contribute to Matten’s Sell rating for Lemonade’s stock.
In another report released on August 13, Jefferies also maintained a Sell rating on the stock with a $37.00 price target.