UPDATE: Compass Point Reiterates on Meadowbrook Insurance Group as Market Reservation is Likely Following Another Reserve Charge

In a report published Thursday, Compass Point analyst Ken Billingsley reiterated a Neutral rating on Meadowbrook Insurance Group MIG, but lowered the price target from $8.00 to $6.50. In the report, Compass Point noted, “Following the second largest reserve charge over nine straight quarters, we believe investors will demand to see an end to reserve charges before they begin to trade MIG in line with the ROATE it can deliver. Our sum of the parts valuation ranges from $5.25 to $8 per share, depending on the multiples used to value the fee and underwriting businesses. We believe investors will trade the company closer to the lower end of the range given the propensity for reserve charges. We don't believe the company is at risk for a rating agency downgrade at this point, but further sizeable reserve developments could pressure that assumption. "For long term investors, MIG shares appear inexpensive in relation to TBVPS but when compared to our 2015 expected ROATE the company may generate, a discount appears appropriate. When the company strings together a few quarters without reserve charges, we believe the multiple could begin to expand. In the meantime, we believe the prospect for M&A could provide a floor for MIG shares, though we do not believe management is actively pursuing a merger at this time.” Meadowbrook Insurance Group closed on Wednesday at $6.03.