Why Earnings Synergies With Chubb Could Boost ACE By 50%

In a report published Friday, Bernstein analyst Josh Stirling upgraded the ratings on ACE Limited ACE and Chubb Corp CB from Market Perform to Outperform. The price targets were raised from $108 to $140 and from $127 to $147, respectively. "Three weeks ago, ACE announced its 50/50 stock/cash acquisition of Chubb, and today we are upgrading both stocks to outperform, as we see clear levers for the successor firm—to be renamed Chubb— to drive margins and realize growth," analyst Josh Stirling said. Expressing bullishness over the deal, Stirling said that there was "a multiple expansion opportunity, a helpful technical set-up as the share dilution overhang passes." The analyst believes that unrecognized earnings synergies would benefit the shareholders of Chubb and ACE, and ACE's stock could surge more than 50 percent over the next few years. The combined entity would offer investors "a high quality franchise with leverage to growth, in the U.S. and beyond," the Bernstein report stated. While there was no doubt that the new Chubb was well positioned for growth, the Street appeared to be "meaningfully under-estimating the earnings power of the combined company," Stirling wrote. The analyst also said that the company may be able to "materially beat their rather modest guidance for "double digit" deal accretion," and generated as much as 50 percent earnings growth.