By Cyril Tuohy
Equity analyst Ryan Krueger of Keefe, Bruyette & Woods (KBW) in New York has picked Voya Financial, Principal Financial, MetLife and Prudential as the top life and retirement industry performers in 2015, according to a research note.
Voya is the analyst’s top pick because of its “company-specific fundamental story,” which includes better profit margins, more deployment of capital, and tax developments deemed favorable to the company.
KBW said it expects Voya to pose the strongest earnings per share growth in the group of companies tracked by the investment researchers. Per-share growth is estimated at 13 percent in 2015 and 14 percent in 2016.
Repricing of the company’s life and retirement products also is expected to expand profit margins, Krueger said in his report titled “2015 Outlook: Inexpensive but Unexciting.”
“Life insurance stock performance will clearly be heavily influenced by external market conditions, in our view,” he wrote.
Krueger also found positive attributes to Principal Financial Group stock because of the company’s diversified approach to generating revenues from its asset management arm, fee-based retirement services and interest-rate-sensitive life insurance products.
At the moment, the market is only giving Principal “partial credit” to its mix of fee-based earnings, Krueger wrote.
Principal’s “below-average interest rate sensitivity and above-average dividend payout ratio,” are also strong points for the company, the analyst also wrote.
Krueger said KBW is sticking with its “Outperform” ratings on MetLife and Prudential, though analysts feel “more comfortable” with MetLife now that it has been named a nonbank systemically important financial institution (SIFI) and due to “recent capital management conservatism.”
“Our thesis on both Met and Pru is that the market has too harshly lumped them in a G-SIFI financial category, ingoing some strong underlying franchises and the fact that revenue and expense sources are not being attacked by regulators,” Krueger also wrote.
The Financial Stability Oversight Council in September issued a preliminary designation of MetLife as a SIFI. Because SIFIs are also regulated at the federal level, companies must meet stricter financial regulations.
In a rising interest rate and rising equity market environment, the best life insurance company stocks to own next year will be Lincoln Financial, MetLife, Prudential and Voya, KBW said.
In an economic environment with a flatter yield curve and rising equity markets, Principal and Prudential are the best stocks to own, KBW said.
But in a market with higher interest rates and lower stock valuations, Genworth Financial, Symetra Financial and Unum are the best bet, KBW said.
In a flat interest rate environment and lower equity markets, Aflac, Reinsurance Group of America and Torchmark Corp., parent of Torchmark Life Insurance, KBW also said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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