UBS downgraded M&G on Wednesday to 'neutral' from 'buy' as it said the stock was now fairly valued, but lifted the price target to 290p from 275p.
It said M&G currently trades with a FY27E dividend of circa 8%, which is the lowest within the UK life insurance subsector.
"However, given the company's focus on asset management (more than 40% of earnings), we believe this lower yield is justified," the bank said.
It noted the shares have outperformed the European insurance sector, with M&G up more than 38% in the year to date, versus the sector up more than 20%.
"M&G screens the cheapest on a price to solvency II book value basis, however, when allowing for the return on book value and capital generation growth, M&G screens fairly valued," it said.
UBS also said M&G screens with one of the lowest payout ratios relative to capital generation and IFRS earnings. "However, we do not expect this excess capital to be returned to shareholders as we expect management to build up distributable earnings within M&G's insurance business (PAC).
UBS said M&G's solvency ratio of 234% is one of the highest in the sector. However, the bank's balance sheet stress testing work indicates that M&G has high exposure recessionary/ credit downturn risks.
"The main risk at M&G is equity risk, and we expect M&G's solvency ratio to fall to 170% (target range: 160-190%) under an extreme scenario (akin to the dot-com recession)," it said. "The high solvency provides us comfort around the resilience of M&G's shareholder capital returns."
At 1115 GMT, the shares were up 1% at 281.10p.