The QBE Insurance Group Ltd (ASX: QBE) share price crash could be bottoming out with Morgan Stanley predicting that the stock is set to outperform in the near-term.
The QBE share price suffered its fourth consecutive trading day of losses on Wednesday when it shed 0.9% to a three-month low of $11.77.
This means the international insurance provider has underperformed over the past three months with its share falling 7% when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up nearly 4%.
Even its peers are performing better. The Suncorp Group Ltd (ASX: SUN) share price is down 3% following the recent departure of its CEO and the Insurance Australia Group Ltd (ASX: IAG) share price is 1.4% in the black over the same period.
Is the QBE share price oversold?
The sharp sell-off of QBE has gone too far, according to Morgan Stanley, who believes that there is a 70% to 80% chance that the stock will rise relative to the market over the next 60 days.
"This is because the stock has traded off recently, making short term valuation much more compelling. US floods present a risk to Crop performance," said the broker.
"However, market fears look over done. With Crop NEP [net earned premium] of ~US$900m, every 1% deterioration in the Crop COR [combined operating ratio] is a ~1% hit to QBE earnings.
"Guidance assumes target Crop COR of ~92%. With the stock down ~9% in recent trading (vs. ASX200, broadly flat), risks look priced in."
Broker rates QBE a "buy"
However, the broker admits that reliably evaluating crop performance is complicated as there are several factors that can impact on the profitability of QBE's crop insurance business. This includes yield, price and positive selection of risks captured by QBE vs. the US Government crop scheme.
What's more reassuring to QBE shareholders is that any loss from this division is unlikely to be repeated in FY20, while insurance claims from catastrophes and natural disasters this year has been relatively benign.
Morgan Stanley has an "outperform" recommendation on the stock with a price target of $13 a share.
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