In a report released today, Paul Newsome from Piper Sandler downgraded Kemper to a Sell, with a price target of $50.00.
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Paul Newsome has given his Sell rating due to a combination of factors affecting Kemper’s financial performance and market position. The company’s second-quarter earnings were significantly below expectations, with a return on equity (ROE) of about 10%, which is considerably lower than its peers who are achieving ROEs above 20%. Additionally, the combined ratio of 94.1% indicates that Kemper is operating within its guidance range but not exceeding expectations, suggesting limited profitability improvement.
Furthermore, the growth in policy-in-force (PIF) for Kemper’s private passenger auto business has slowed, particularly in key markets like California, Florida, and Texas. This deceleration in growth, coupled with unfavorable reserve development in its commercial insurance segment, raises concerns about the company’s ability to maintain its earnings momentum. The management’s view that the market has normalized and the absence of an overshoot in profitability further contribute to the cautious outlook. Consequently, Newsome has adjusted the price target to $50, reflecting a more conservative earnings estimate and a premium discount compared to its peers.