Lemonade (LMND) fell sharply after Credit Suisse analyst Michael Zaremski began coverage on shares of the online insurance platform with an underperform rating and a $56 price target.
The company’s “valuation is too juiced,” given a Credit Suisse customer survey that showed weakness, he said.
Lemonade recently traded at $62.47, down 8.13%, and has slid 10% from July 2, its first day of trading. But it’s still way above its initial public offering price of $29.
As for the Credit Suisse survey, it showed that satisfaction rates in important areas, such as the claims and application processes, were “materially lower” for Lemonade than the peer average, Zaremski wrote in a commentary cited by Bloomberg.
The survey showed particular weakness for Lemonade compared to its rival Progressive.
Lemonade needs “expense ratio improvement,” Zaremski said. And it must lower its acquisition cost ratio and raise its customer retention rates, particularly among young people, to attain lasting profitability, he said.
In late July, when the stock traded around $72, some analysts began coverage of Lemonade with a lack of enthusiasm. Valuation was a major concern.
Goldman Sachs, the lead underwriter of the IPO, rated Lemonade as a sell, with a price target of $44.
With its use of artificial intelligence, Lemonade is disrupting the property and casualty insurance business, Goldman analysts wrote.
But "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," they said.