Buy - Price: 10.70 on Oct. 14
by Sandler O'Neill

We are maintaining our Buy rating following XL's pre-announcement of third-quarter earnings. We are revising our 2008 operating EPS estimate to a loss of $2.15 from a loss of $3.01 to account for the third-quarter earnings and to reflect [an error in our previous estimate]. Our 2009 EPS estimate is unchanged at $2.77. The most important development from XL's pre-announcement is that there does not appear to be any immediate need for XL to raise capital.... We were slightly disappointed with XL's earnings: it reported a $1.65 to $1.67 billion loss. Our estimate was $1.57 billion. This net income loss equates to $6.08 to $6.17 per share. We estimate operating EPS (which excludes net realized investment losses) at a loss of $4.83. We were looking for a loss of $4.67 per share.... Target share price: $18. Market cap: $1.58 billion.

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So you can wreck XL Capital (XL) and Prudential (PRU) and Morgan Stanley (MS) and MetLife (MET) and KeyCorp (KEY) and Fifth Third (FITB) and Nat City (NCC) -- takeover, who are you kidding? -- in a matter of weeks.

XL's valuation looks like a misprint, at three times estimated '09 profits and half of book value. The stock is down 56% this year, to 20, on fear the company may have to pump billions of dollars into Security Capital Assurance (SCA), a troubled, MBIA-like financial-guaranty company whose stock has plunged 84%, to 63 cents, this year. SCA was spun off by XL in 2006.

Goldman Sachs said it is upgrading XL Capital (XL) to Buy from Neutral based on valuation. See shares trading close to book value and note that probability of SCA worst case scenario remains low. Price target raised to $40 from $33.

Rating on XL Capital (XL) was cut from Overweight to Neutral, JP Morgan said. Credit will likely continue to be a factor, and the fundamental outlook is weaker than expected.

XL Capital recently announced a $500 million dollar buyback.

The Bermuda based global provider of commercial and industrial insurance and reinsurance trades for 4.5x cash flow.

XL Capital (XL) was downgraded to Market Perform, Wachovia said. Company has limited upside potential, with earnings almost solely being driven by the share repurchase program.