Jefferies has cut its recommendation on Everest Group (EG, Financials) to Hold from Buy, highlighting concerns over a possible reserve increase connected to the U.S. casualty insurance business of the firm. The choice aligns with Everest's declaration in the fourth quarter of 2024 that it would do extensive long-term reserve studies.
Although Jefferies pointed out that little data on the extent of the changes makes it difficult to forecast the financial effect, the reserve review is likely to reveal the requirement of reserve building. Particularly with regard to Everest's ambition of a total shareholder return above 17% for 2024-2026, analysts underlined that reserve-related risks might seriously jeopardize the financial goals of the company.
With Jefferies expecting a 17.4% total shareholder return over the three-year term, their present forecasts line with Everest's recommendations. This forecast does not, however, include the likelihood of reserve changes. With consensus projections of 16.9%, broader market expectations are much lower. The difference emphasizes even more the uncertainties Everest faces as it gets ready to complete its reserve study.
The company also voiced worries about Everest's share price maybe being limited by the unresolved reserve issue. Except for cumulative other comprehensive income, Jefferies said the stock might be range-bound within a price-to-book ratio of 1.0x to 1.1x until clarity on the real book value develops.
For Everest, the next reserve analysis is very important as the results might significantly affect its financial situation and investor trust. Analysts said that attaining significant stock price increase may remain difficult in the short future without a clear answer to all of the reserve issues.
The administration of Everest has not given particular information on the reserve strengthening procedure, which further clouds the picture. Investors will keep a close eye on changes in the reserve study and any further releases to see how the business is tackling these issues.
