Company Reports

We think Fairfax’s first-quarter results were solid. Underwriting margins held at an attractive level, and tailwinds continue on the investing side. Book value per share, adjusted for dividends, increased 2% from year-end. We will maintain our CAD 1,180 fair value estimate and no-moat rating. We continue to see shares as overvalued. While Fairfax is performing well right now, its historical record is mixed, and we think the market is overly focused on the favorable near-term outlook.

We are increasing our fair value estimate for Fairfax to CAD 1,180 per share from CAD 970 after reassessing the company's prospects on the investment side given recent changes in capital market conditions. Our fair value estimate equates to 1.0 times year-end 2023 book value and 1.4 times tangible book value. We still see the shares as materially overvalued from a long-term perspective. While the company is navigating the current capital market environment well, we would note that Fairfax's investment performance has been spotty over time. Although the company is riding high at the moment, its historical track record includes some substantial losses along with impressive gains.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a long history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more reliable path to long-term value creation for insurers, and Fairfax's underwriting record is relatively poor.

Fairfax finished the year on a strong note and continues to benefit from industry and macroeconomic tailwinds. Book value per share, adjusted for dividends, increased 25% for the full year, a metric that we believe highlights how favorable the environment has been for the no-moat company. We are maintaining our CAD 970 per share fair value estimate and see the shares as overvalued right now. We think the current market is overly tied to the positive near-term outlook, and we retain concerns about Fairfax's future given its up-and-down historical performance.

Short-seller Muddy Waters released a report outlining a bear case on no-moat Fairfax. At a high level, we don’t disagree with its take, and we do think the stock is materially overvalued right now. In our opinion, Fairfax is a hit-and-miss investor, a relatively poor underwriter, and has an overly complicated structure. We would agree that the company’s book value growth target of 15% is unrealistic, and it has generally fallen well short of this level since the financial crisis. As to Muddy Waters' claims that Fairfax is mismarking investments, we don’t think it is necessary to believe that to think the stock is overvalued. We will maintain our CAD 970 fair value estimate.

Fairfax continued its recent string of good results in the third quarter. Book value per share, adjusted for dividends, has grown 16% year to date, which gives an indication of the winds the company has had at its back this year. While we appreciate the positives the company is enjoying right now, its historical performance has been increasingly hit or miss over time, and we don’t expect this to change long term. We will maintain our CAD 970 fair value estimate for the no-moat company and see shares as a bit overvalued at the moment.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a long history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more reliable path to long-term value creation for insurers, and Fairfax's underwriting record is relatively poor.

We are increasing our fair value estimate for no-moat Fairfax Financial to CAD 970 per share from CAD 790, after reassessing the company's prospects on the investment side given recent changes in capital market conditions. The company is navigating the current environment well, but we would note that Fairfax's investment performance has been spotty over time and includes some substantial losses along with impressive gains. Our fair value estimate equates to 0.9 times the book value at the end of the second quarter and 1.2 times the tangible book value. While we have raised our fair value estimate, we still see shares as a bit overvalued at the moment.

Fairfax Financial reported a solid second quarter with relatively strong underwriting margins. However, this was partially offset by some investment losses. While the second quarter was weaker than the first quarter, Fairfax is having a good year so far, with book value per share up 11% since year-end, adjusted for dividends. We will maintain our CAD 790 fair value estimate for the no-moat company and see the shares as overvalued at the moment.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a long history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more reliable path to long-term value creation, and Fairfax's underwriting record is relatively poor.

Fairfax reported a strong first quarter, with attractive results on both the underwriting and investment sides of the business. As a result, book value per share, adjusted for dividends, increased 7% from the year-end figure. However, we see nothing to alter our long-term view, and will maintain our CAD 730 per share fair value estimate for the no-moat company.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more maintainable path to long-term value creation, and Fairfax's underwriting record is relatively poor.

Fairfax finished the year on a strong note, as the company saw good performance on both the underwriting and investing sides. For the full year, book value per share increased 6%, adjusted for dividends. After reassessing our assumptions, we expect to raise our $681 fair value estimate for the no-moat company by about 7% to reflect time value and capital market movements since our last update. However, we continue to see shares as overvalued.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more maintainable path to long-term value creation, and Fairfax's underwriting record is relatively poor.

Fairfax had a rough third quarter, with catastrophe losses and mark-to-market investment impacts pushing the company to a modest loss in the quarter. In our view, the results speak to the potential volatility the company’s approach creates. Book value per share, adjusted for dividends, is down 8% since the start of the year. However, we see nothing in the quarter to materially alter our long-term view, and will maintain our CAD 636 fair value estimate and no-moat rating.

Given the differing states of the pricing cycle across lines and recent capital market movements, property and casualty insurers have a variety of tailwinds and headwinds at the moment. Commercial line insurers have seen strong pricing increases over the past few years, and we think the outlook for that area is relatively bright, as attractive underlying combined ratios create a solid base for strong profitability. Conversely, following a burst of abnormally high profitability in the early stage of the pandemic, personal auto insurers have struggled with a number of headwinds more recently, which has pushed most players into significant underwriting losses. Higher interest rates have reduced carrying value for fixed-income investments but offer the possibility of better investment income going forward. Finally, the bear market creates issues for insurers with an equity-heavy investment approach.

Recipe announced that it has received a bid from Fairfax to acquire the company in a CAD 1.2 billion deal. Recipe is a restaurant operator with over 1,200 locations. Presumably, Fairfax believes it has an opportunity to take advantage of pandemic headwinds to potentially acquire Recipe at an attractive price. However, from a strategic point of view, we have a skeptical view of this type of non-insurance acquisition. We think Fairfax's performance will continue to hinge on whether or not CEO Prem Watsa's investment theses play out and would note that his track record has been increasingly hit or miss over time. That said, the deal doesn’t look to be quite large enough to have a material impact on our valuation, and we will maintain our CAD 636 fair value estimate and no-moat rating for Fairfax.

While Fairfax, like its peers, is benefiting from a harder pricing market on the underwriting side, its relatively unique investment positioning was a major negative, and investment losses led to a loss of $881 million for the quarter. Adjusted for dividends, book value per share is down 5% since year-end. We will maintain our CAD 636 per share fair value estimate and no-moat rating for the firm.

While its primary business is insurance, Fairfax is in some ways more of an investment fund. Chairman and CEO Prem Watsa has a history of bold investment bets and has shown a willingness to be unorthodox when it comes to portfolio construction. As a result, compared with other insurers, the company's results tend to be driven more by results on the investment side. We're somewhat skeptical of this approach, as we believe disciplined underwriting is a more sustainable path to long-term value creation, and Fairfax's underwriting record is relatively poor.

Fairfax Financial recorded a solid first quarter, in our view, with results being lifted by a more favorable industry backdrop. We will maintain our CAD 620 fair value estimate for the no-moat company.