Undervalued Life Insurers Offer Long-Term Opportunities

Strategic Insights -

Despite the financial news media's fixation on troubled banks like Bank of America and the Dodd-Frank regulatory overhaul, profitable life insurers are flying under the radar, according to analysts. With many life insurers trading below book value and facing far less risk than banks, investors can find attractive opportunities in the sector. Prudential Financial, Ameriprise Financial, MetLife, American Equity Investment Life, and Lincoln National Corp. are just a few of the life insurers identified by TheStreet with significant upside potential.

Key Takeaways:

  • Prudential Financial is one of the largest U.S. insurance underwriters, with $613 billion in total assets as of June 30, and has 39% upside potential based on a mean price target of $71.33 among analysts polled by FactSet.
  • Ameriprise Financial is a solid industry with a 14.5% operating return on equity, 46% upside potential based on a mean 12-month price target of $65.75 among analysts polled by FactSet, and is trading at 7 times the consensus 2012 EPS estimate of $6.38.
  • MetLife, a top pick among analysts, has 53% upside potential based on a mean 12-month price target of $50.53 among analysts polled by FactSet, 5.6 times the consensus 2012 EPS estimate of $5.78, and a 10.4% market share in $7.7 billion in direct premiums written during the first half of 2011.
  • American Equity Investment Life Holding Co. has 63% upside potential based on a mean price target of $15.40 among analysts polled by FactSet, is trading at 4.6 times the consensus 2012 EPS estimate of $2.04, and has all five analysts covering the shares with buy ratings.
  • Lincoln National Corp. has 64% upside potential based on a mean price target of $31.40 among analysts polled by FactSet, 4.8 times the consensus 2012 EPS estimate of $4.16, and is trading at 0.6 times tangible book value.

Statistics:

  • Market share of Prudential Financial in U.S. life insurance carriers: 6.6%
  • Direct premiums written by Prudential Financial in 2011: $4.9 billion
  • Return on equity of Ameriprise Financial: 14.5%
  • Mean price target of Ameriprise Financial among analysts polled by FactSet: $65.75
  • Upside potential of MetLife based on mean 12-month price target among analysts polled by FactSet: 53%
  • Market share of MetLife in U.S. life insurance carriers: 10.4%
  • Direct premiums written by MetLife in 2011: $7.7 billion
  • Upside potential of American Equity Investment Life Holding Co. based on mean price target among analysts polled by FactSet: 63%
  • Price multiples of Lincoln National Corp. to consensus 2012 EPS estimate among analysts polled by FactSet: 4.8

Sources:

  • TheStreet, "Life Insurers at Historically Low Multiples," by Philip van Doorn
  • Credit Suisse, report by Thomas Gallagher
  • Weiss Ratings, report by Gavin Magor
  • FactSet, consensus price targets among analysts
  • SNL Financial, data on life insurers
  • Bank of America Merrill Lynch, report by Edward Spehar
  • FactSet, consensus EPS estimates among analysts
  • SNL Financial, data on tangible book value and total assets.