Why This Analyst Initiated A Bearish Rating For Insurtech Disruptor Lemonade

Lemonade Inc LMND has achieved significant growth from a small base, which is likely to continue. But, the addressable market is limited and the company may need to sacrifice long-term profitability to win market share, according to BofA Securities.

The Lemonade Analyst: Joshua Shanker initiated coverage on Lemonade with an Underperform rating, while establishing a price target of $29.

The Lemonade Thesis: The company is positioned as an insurtech disruptor, with its business aimed at Millennial renters, who are typically neglected by the rest of the industry “due to their perceived low price per policy and low policy life persistency,” Shanker said in the initiation note.

See Also: Lemonade Renters Insurance Review

“Lemonade believes that it can create economies of scale and refined technology through which it can make these customers profitable over the long-term,” he wrote.

The analyst expects the company to turn cash flow positive in 2025 and earnings positive in 2026. “Lemonade’s guidance of $372-378mn in premium in-force seems aggressive ... It is plausible that Lemonade could hit its target if it ramps marketing spend, but we believe such growth would be acquired a cost far higher than the lifetime value of the policies/customers,” he added.

LMND Price Action: Shares of Lemonade had risen by 7.26% to $93.05 at the time of publication Tuesday.

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