Harel Insurance Investments & Financial Services (TASE:HARL) Wins AM Best A Rating, Is It Fully Priced?

Harel Insurance Investments & Financial Services (TASE:HARL) drew fresh attention after AM Best assigned the insurer a Financial Strength Rating of A (Excellent) and an issuer credit rating of "a," both with a Stable Outlook.

See our latest analysis for Harel Insurance Investments & Financial Services.

At a share price of ₪166.8, Harel Insurance Investments & Financial Services has a 7 day share price return of 4.91% and a year to date share price return of 33.98%. The 1 year total shareholder return of 68.55% and very large 5 year total shareholder return suggest momentum has largely been built over a longer period, despite a 90 day share price return that declined 9.15%.

If this kind of rating driven interest has you thinking about where else capital might flow, it could be worth scanning for 106 top founder-led companies

After a sharp rerating that left Harel Insurance Investments & Financial Services trading above the current analyst price target and showing very strong multi year total returns, is the bigger upside still in front of you or already mostly in the rear view mirror as valuation stands today?

Preferred P/E of 11.3x: Is it justified?

On a headline basis, Harel Insurance Investments & Financial Services trades on a P/E of 11.3x, which screens as cheaper than the wider IL market but a touch richer than its closest peers.

The P/E ratio compares the current share price to earnings per share and, for insurers like Harel Insurance Investments & Financial Services, it is a simple way to see how much investors are paying for each unit of current profit. With earnings reported at ₪3,045.0m and high quality earnings flagged in the data, the current P/E suggests the market is applying a moderate pricing for those profits rather than a premium or a deep discount.

Compared with the IL market P/E of 15.3x, Harel Insurance Investments & Financial Services trades on a lower earnings multiple, which points to a cheaper tag relative to the broader market. Against the Asian Insurance industry average of 11.5x, however, the 11.3x P/E sits just below, while still above the peer average of 10.6x. This implies the stock is priced slightly higher than some closer comparables yet not out of line with the sector level that the market could ultimately gravitate toward.

Explore the SWS fair ratio for Harel Insurance Investments & Financial Services

Result: Price-to-Earnings of 11.3x (ABOUT RIGHT)

However, the recent rerating of Harel Insurance Investments & Financial Services above the ₪150 analyst target and the very large 5 year total return leaves less room for disappointment if earnings or credit conditions weaken.

Find out about the key risks to this Harel Insurance Investments & Financial Services narrative.

Another View: What the SWS DCF Model Says

While the P/E suggests Harel Insurance Investments & Financial Services is roughly in line with what the market is paying for its earnings, the SWS DCF model points in a different direction. With the share price at ₪166.8 versus an estimated future cash flow value of ₪118.2, the stock screens as overvalued on this cash flow view.

This kind of gap can matter in practice, because it leaves less margin for error if earnings growth, interest rates, or required returns shift. The key question for you is whether the recent performance and rating strength are enough to justify paying well above what the DCF model suggests.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Harel Insurance Investments & Financial Services 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 226 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

With Harel Insurance Investments & Financial Services showing both strong recent attention and a mixed picture on valuation, it makes sense to move quickly and test the story against the underlying data yourself. To weigh up the upside potential against the areas investors are more cautious about, take a close look at the 3 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Harel Insurance Investments & Financial Services?

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• Hunt for potential mispricings using the 226 high quality undervalued stocks that highlight companies with solid fundamentals priced below their estimated worth.
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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.

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