Mercury General’s Outperform Rating Maintained Despite Wildfire Loss Concerns

Raymond James analysts reiterated an Outperform rating and an $80 price target for Mercury General Corporation (NYSE:MCY) despite recent challenges stemming from devastating wildfires near Los Angeles, which resulted in a stock price drop of 19% on Friday.

While acknowledging the adverse impact of the wildfires, the analysts highlighted Mercury General's underlying profitability, excluding catastrophe losses, as well as robust top-line growth and elevated net investment income (NII) as key drivers of a potential stock price recovery.

The wildfires, with insured loss estimates ranging from $11 billion to $17.5 billion, could become the most expensive in U.S. history, with economic losses exceeding insured claims. However, sophisticated underwriting practices may mitigate gross losses for private insurers like Mercury General, limiting their proportional exposure.

In response to the anticipated wildfire and other potential catastrophe losses, the analysts lowered the first-quarter 2025 operating EPS estimate from $1.60 to breakeven, reflecting proactive adjustments for potential losses. Despite these short-term setbacks, Mercury General is projected to generate approximately $193 million in pre-tax income in Q1 2025, compared to $89 million in Q1 2024, excluding catastrophe impacts.

Full-year EPS estimates for fiscal years 2025 and 2026 have been revised downward to $5.30 and $7.00, respectively, from previous estimates of $6.90 and $7.02.