Morgan Stanley upgrades insurer Lemonade to 'equalweight', sets $85 per share TP

Morgan Stanley has upgraded from "underweight" to "equalweight" mid-cap insurer Lemonade while setting the most optimistic target price on Wall Street. The company is showing sustained growth in its auto insurance business and is steadily moving toward EBITDA profitability, the investment bank argued. Against this backdrop, Lemonade shares jumped more than 8% on Tuesday, December 16.

Morgan Stanley upgraded its rating on Lemonade shares to “equalweight” from “underweight” on Tuesday and raised its target price by more than 60% to $85 per share, TechStock2 noted.

The market reacted positively. On Tuesday, Lemonade shares climbed 8.4% to $81.40 apiece. Even after the rally, Morgan Stanley’s valuation still implies about 4% upside.

Investors focused on the scale of the upgrade. This was not a marginal adjustment but a sharp reversal from Morgan Stanley’s stance in April, TechStock2 writes. At that time, the bank assigned an “underweight” rating and cut its target price by 31%, to $24 per share, citing intensifying competition in the auto insurance market.

For stocks like Lemonade, with a "meaningful short base and a history of sharp sentiment swings," a high-profile upgrade like this one can "act like a match near dry tinder – especially when it reinforces a popular bull thesis,” TechStock2 argues.

In a note penned by analyst Bob Huang, Morgan Stanley argues Lemonade “presents a unique story” with total loss ratio stability and a clear path to EBITDA profitability by the fourth quarter of 2026.

In the third quarter of 2025, Lemonade reported an 11-percentage-point year-over-year improvement in its total loss ratio, to 62%, calling it the best result in the company’s history. The loss ratio is a key profitability metric in insurance, showing what share of collected premiums is spent on claims and claims handling.

Adjusted EBITDA remained negative at minus $26 million, but improved markedly versus minus $49 million a year earlier.

Morgan Stanley also highlighted Lemonade’s momentum in auto insurance. In the third quarter, the segment’s loss ratio fell 16 percentage points year over year to 76%, while in-force premiums (the total annualized premium for all active insurance policies an insurer holds at a specific time) rose about 40% to $163 million over the same period, exceeding even the company’s expectations, the bank said.

Another argument for the upgrade was balance-sheet strength. Lemonade has positive adjusted free cash flow and more than $1 billion in cash and investments, allowing it to finance growth without tapping the capital markets, Morgan Stanley noted.

Morgan Stanley’s $85 per share target price is the most bullish on Wall Street, according to MarketWatch data. The average target price for Lemonade shares stands at $61.63 per share, below current trading levels. Analyst sentiment remains mixed: six analysts recommend “hold,” three “sell,” and only two “buy.”