The most probable point estimate of the stock's value (22.5% tax rate and 12x multiple) is currently $1858 in our model. It corresponds to a P/BVPS of ~1.8 or slightly higher than Berkshire's 1.6 which makes sense as smaller Fairfax grows higher. It also coincides with our estimates of the P/B ratio presented elsewhere.

Conclusion

We are upgrading Fairfax to buy. The company keeps buying back its stock (~5% over three quarters of 2024) which supports our rating.

In his letter, Prem Watsa mentioned 15% growth in BVPS as the target. When factoring in the additional appreciation required for the stock to reach its intrinsic value, this suggests the potential for high-teens returns in the future.

The biggest risk to our model is a deterioration of Fairfax's underwriting results. So far, the company prioritizes margins over growth, as organic net premiums written growth was only ~3-3.5% in 2023 and 2024.

seekingalpha.com - Fairfax financial an overlooked compounder trading at a discount

After sitting on the sidelines for years, I have initiated a small position. I was watching and waiting for a bigger drop when the Muddy Waters short report was released, but it bounced back almost right away.