It's a long time ago that one has a lot to say about leaders in the banking and financial sector. That said, the misfortunes of the big banks may not affect some of the main non-bank financial services. According to BofA Merrill Lynch, life insurance equities are now dumped in 2019 and are already taking into account significant deterioration in credit conditions, falling stock prices and interest rates. And for opponents, the team of analysts believes that the general sentiment of investors is negative for the group, even if earnings per share estimates have not significantly decreased.
Merrill Lynch admits that the risk remains in its forecasts, but the valuations seem quite reasonable even though earnings per share (EPS) estimates were down 20%. The company also noted that the market had punished many well-capitalized companies with effective risk management and deploying capital through buy-backs and accretive acquisitions. Another boost is that the firm fears that credit problems will be exaggerated, even though higher credit losses would limit the growth in book value.
The Merrill Lynch team made several sectoral changes in targets and ratings on Wednesday, but the two major calls focused on the shares of Lincoln National Corporation (NYSE: LNC) and MetLife, Inc. (NYSE: MET).
The appeal at Lincoln National stands out because Merrill Lynch chose the carrier as his first choice of the year. The company has a purchase price and price target of $ 74, but it's $ 1 less than the pre-call price target. Its shares have fallen by more than 30% over the last year despite results close to the initial expectations. This is worse than the decline of the S & P 500 index at -6% and worse than 21% of the S & P personal insurance index. The Merrill Lynch report said:
Estimates for 2019 were generally stable for most of the year, despite the weak performance of the shares. We see the potential for multiple expansion from low levels due to the disappearance of the combination of capital market-responsive companies, efficiency gains over the next two years and the future. 39 actions to reduce the risks to shareholders.
MetLife was raised to buy from Neutral and Merrill Lynch raised its price target from $ 50 to $ 53 during his call. The new price target is based on valuations of 8.5 times the company's estimate of EPS for 2020 and on a sum-of-parts approach. The company report said:
We believe that quality issues will continue to decline and that the market has not fully understood the significant shift in business mix following the Brighthouse rotation. Cost savings should drive growth in EPS as well as ongoing buybacks.
Shares of Lincoln National were last seen up 3% to 57.55 on Wednesday night, compared with 48 weeks at $ 48.68 last week. This price target of $ 74 is higher than the estimate of $ 71.60 set by Thomson Reuters and Lincoln's dividend yield is about 2.7%.
MetLife shares were trading up about 2.4% to $ 45.10 to $ 45.12 Wednesday night. The 52-week range is between $ 37.76 and $ 55.21, and Merrill Lynch's target of $ 53 is higher than the target price of $ 50.81 set by consensus analysts. MetLife's dividend yield is closer to 3.8%.
Additional target price changes were made during the call, but Aflac Inc. (NYSE: AFL) was the only one to experience an increase. Merrill Lynch raised its price target from US $ 47 to US $ 51 to reflect its defensive activities and the continued strength of its margin. Aflac shares were last seen up 1.1% to $ 46.90. The insurer has a target price of consensus analysts of $ 46.86 and a range of 52 weeks ranging from $ 41.41 to $ 48.19.