Why Assured Guaranty Stock Is On Investors’ Radar

Assured Guaranty (AGO) has attracted fresh attention after recent trading moves, with the share price at $88.39 and short term returns showing a mix of gains over the week and month, alongside a small negative past 3 months performance.

The recent 6.2% 1 month share price return, alongside a small 1 day gain, contrasts with a slightly negative year to date share price return. At the same time, 3 and 5 year total shareholder returns of 48.6% and 117.7% point to a stock where long term holders have seen rewards even as near term momentum has cooled.

If Assured Guaranty has you thinking about what else could be on your watchlist, it might be a good moment to check out 22 top founder-led companies as another hunting ground for ideas.

With Assured Guaranty trading at $88.39 and data suggesting a large intrinsic discount along with room to analyst targets, you have to ask: is this an undervalued insurer, or is the market already pricing in future growth?

Preferred P/E of 10.2x: Is it justified?

Assured Guaranty trades on a P/E of 10.2x, which sits below both the US Insurance industry average of 12.4x and the peer group average of 10.6x, yet above the SWS fair P/E estimate of 7.9x.

The P/E ratio compares the share price to earnings per share and gives you a quick sense of how much investors are paying for current earnings. For an insurer like Assured Guaranty, where earnings can be influenced by credit cycles and insured losses, P/E often becomes a shorthand for how confident the market is in the durability of those profits.

Here, the data paints a mixed picture. On one hand, Assured Guaranty is labelled good value versus industry and peer averages at 12.4x and 10.6x respectively, suggesting the market is not paying a premium for its earnings. On the other hand, the SWS fair ratio work flags AGO as expensive versus an estimated fair P/E of 7.9x, a level the market could move towards if sentiment or earnings expectations soften.

Against that backdrop, the SWS DCF model points to a fair value of $186.97 per share, with AGO at $88.39 trading at a 52.7% discount to that cash flow based estimate. The DCF model projects future cash flows from the business and then discounts them back to today, which can highlight a very different picture to simple earnings multiples, especially for companies with uneven earnings or long duration cash flows. For a credit protection and financial guaranty insurer, that kind of cash flow focus can be useful when you are thinking in multi year terms rather than just next quarter.

Result: Price-to-Earnings of 10.2x (ABOUT RIGHT)

However, you still need to weigh risks such as annual revenue and net income declines of 3.8% and 16.8%, as well as potential shifts in credit conditions affecting insured obligations.

Another View: P/E Versus Fair Ratio

Our DCF work points to a fair value of $186.97, which makes the current $88.39 price look heavily discounted. That sits uneasily next to the P/E fair ratio of 7.9x, which suggests AGO is expensive at 10.2x. When two models pull in opposite directions like this, the question is which one is more reliable.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Assured Guaranty for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Does this mix of upside signals and clear risks feel compelling to you, or not quite enough? Act while the data is fresh and weigh the trade off yourself by checking the 3 key rewards and 2 important warning signs now.

Looking for more investment ideas?

If AGO has sharpened your focus on value and risk, do not stop here. Put the same clear thinking to work on a broader set of opportunities.

• Target quality at a discount by scanning our list of 54 high quality undervalued stocks that combine attractive pricing with solid fundamentals.
• Prioritise resilience by checking out 87 resilient stocks with low risk scores, so you can focus on companies that score well on stability and downside protection.
• Hunt for potential future standouts before the crowd by reviewing our screener containing 23 high quality undiscovered gems, where strong financials meet relatively low market attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.