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Legal & General (LSE: LGEN) shares are a very popular investment within the retail investor community. It’s not hard to see why – they offer one of the highest dividend yields in the FTSE 100 index.
Could investors be ignoring the risks, though? Right now, seven different City brokerage firms expect the shares to fall.
JP Morgan’s now bearish
A couple of weeks ago, I looked at how three City firms had recently put Sell or Sell-equivalent ratings on the shares. The firms I highlighted were UBS, Goldman Sachs, and Citi, all of which had come out with slightly concerning price targets – the lowest being 245p – between 10 and 11 August.
Since then, another firm has come out with a similar rating. That’s JP Morgan.
It has lowered its price target for the insurance stock from 285p to 270p. It’s concerned about the company’s free cash flow and the quality of its long-term profits.
It also highlighted rising competition and weaker new business margins in the UK pension risk transfer (PRT) market, which Legal & General is heavily exposed to. This is an issue that Citi pointed to as well.
Three other firms expect share price weakness
So, we now have four firms that have turned bearish on Legal & General shares this month. That’s a bit concerning, in my view.
What’s even more concerning is that three other brokers also expect the shares to fall. These are RBC, Morgan Stanley, and Jefferies.
RBC has a price target of 270p. It’s also worried about competition rising in the PRT market.
Morgan Stanley has a price target of 230p. I can’t find any commentary from the firm here, but that price target – which is about 20% below the current share price – suggests it sees some material risks.
As for Jefferies, it has a price target of just 191p – about 34% below the current share price. It’s concerned that conditions in the PRT market are weakening.
So in total, we have seven firms that expect the shares to underperform. That’s no doubt something to take note of.
There are still a few bulls
It’s worth pointing out that there are a few firms that remain bullish on the shares. Barclays and Berenberg are two such firms.
These firms have price targets of 330p and 353p respectively. So, they see the potential for solid gains in the medium term.
Is it time to consider selling?
Should investors be concerned about bearish broker ratings? Should they consider making a move to reduce risk?
Potentially. Looking at the research, there’s a clear risk and that’s more challenging conditions in the PRT market – where Legal & General has been generating a lot of its income in recent years.
If performance here was to deteriorate, profits could take a hit. This could lead to a cut in the dividend along with share price weakness (an awful combination for investors).
Now, I’m not saying that it’s time to completely offload the shares – they could go on to be a solid investment. But selling a few shares – while the price is high – to diversify and/or take advantage of other income opportunities is a move that could be worth thinking about.
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Edward Sheldon owns shares in JP Morgan.
This story originally appeared on Motley Fool
