Is Assured Guaranty (AGO) Offering Value After Recent Share Price Weakness?

• If you are asking whether Assured Guaranty at about US$81.10 is offering good value or carrying more risk, the key clues sit in its recent returns and how that stacks up against its underlying fundamentals.
• The share price is roughly flat over the past week with a 0.4% decline, and has fallen 6.7% over the last month and 8.6% year to date, even though the 3 year and 5 year returns sit at 63.0% and 102.7% respectively.
• These mixed returns often reflect shifting views on risk and reward, including how the market currently prices Assured Guaranty relative to its fundamentals and sector peers. There are no single, headline news events provided here to pinpoint as a driver, but the stock's recent moves still invite a closer look at what investors may be rethinking about its outlook and balance sheet strength.
• Assured Guaranty currently holds a value score of 5/6. This suggests the market price may not fully reflect several valuation checks, and the sections ahead will walk through those methods before finishing with an even more holistic way to think about what the stock might be worth.

Assured Guaranty delivered -2.0% returns over the last year. See how this stacks up to the rest of the Insurance industry.

Approach 1: Assured Guaranty Excess Returns Analysis

The Excess Returns model looks at how efficiently a company turns shareholders’ equity into earnings after accounting for the required return that investors expect. Instead of focusing on cash flows, it compares the return on equity to the cost of equity and projects how that gap might play out over time.

For Assured Guaranty, the model starts with a Book Value of $125.39 per share and a Stable EPS estimate of $11.77 per share, based on the median return on equity from the past 5 years. The Average Return on Equity is 8.20%, while the Cost of Equity is $10.07 per share. That leaves an Excess Return of $1.70 per share, which is what the model treats as the value created above the required return.

Using a Stable Book Value of $143.55 per share, sourced from weighted future book value estimates from 4 analysts, this framework arrives at an intrinsic value of about $190.68 per share. Compared with a current price around $81.10, the Excess Returns valuation suggests the stock is 57.5% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Assured Guaranty is undervalued by 57.5%. Track this in your watchlist or portfolio, or discover 62 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Assured Guaranty.

Approach 2: Assured Guaranty Price vs Earnings

For a profitable company like Assured Guaranty, the P/E ratio is a useful way to relate what you pay per share to the earnings that support that price. Investors typically look for a P/E that lines up with the company’s earnings profile, where higher expected growth or lower perceived risk can justify a higher multiple, and slower growth or higher risk can point to a lower one.

Assured Guaranty currently trades on a P/E of 7.29x. This sits below the Insurance industry average P/E of 11.38x and also below the peer group average of 10.57x. Simply Wall St’s proprietary “Fair Ratio” for Assured Guaranty is 6.37x, which reflects what its P/E might look like after accounting for factors such as earnings characteristics, industry, profit margins, market cap and risk profile.

The Fair Ratio is more tailored than a simple comparison with peers or the broad industry, because it adjusts for company specific drivers rather than assuming every insurer should trade on the same multiple. Comparing Assured Guaranty’s actual P/E of 7.29x with the Fair Ratio of 6.37x suggests the shares are trading above this custom benchmark.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Assured Guaranty Narrative

Earlier there was a reference to a better way to think about valuation, and that is Narratives. This is where you combine your story about Assured Guaranty with your own assumptions for future revenue, earnings and margins to produce a forecast, arrive at a fair value, and then compare that to the current price. You can do this within an easy tool on Simply Wall St’s Community page that updates automatically when fresh news or earnings arrive. One investor might build a Narrative closer to the higher analyst fair value of US$116.00, while another might lean toward the lower US$95.00 view. Each can then use that gap between their Fair Value and the live market price to decide whether the stock currently looks appealing, expensive, or somewhere in between.

Do you think there's more to the story for Assured Guaranty? Head over to our Community to see what others are saying!

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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