Shares of online insurance platform Lemonade (LMND) fell 8.2% on Thursday after Credit Suisse initiated coverage of the stock with a bearish sentiment and Goldman Sachs reiterated a Sell rating.
Credit Suisse analyst Michael Zaremski initiated coverage of Lemonade with a Sell rating and a price target of $56 (downside potential of 10%). In a research note to investors, the analyst stated that a Credit Suisse survey indicated that satisfaction rates were “materially lower” for Lemonade compared to the peer average in key metrics such as claims and application processes. The company in particular lagged its direct-to-consumer competitor Progressive (PGR).
Zaremski also feels that Lemonade’s valuation is high. He believes that it needs “expense ratio improvement” and must lower its acquisition cost ratio and improve its customer retention rates, particularly among young people, to attain lasting profitability.
Also, Goldman Sachs analyst Heath Terry, the lead underwriter of Lemonade’s IPO, reiterated a Sell rating with a price target of $44. In a research note to investors, the analyst acknowledged that Lemonade is disrupting the property and casualty insurance business with its use of artificial intelligence.
However, he stated that “with 140% year-over-year gross earned premium growth in the most recent quarter, about five years of expected operating losses before reaching break-even, and significant capital needs beyond the most recent IPO, LMND is essentially venture investing in the public markets.” (See LMND stock analysis on TipRanks)
Overall, the Street’s Hold consensus for Lemonade is based on 1 Buy, 4 Holds and 2 Sells. The average analyst price target of $67 indicates an upside potential of 7.4% over the coming months.