Annuities And Digitization Lead The Way For Transformational Financial Growth

Key Takeaways

• Corebridge Financial's annuity platform expansion and digitization efforts could boost future revenue growth and improve operational efficiency.
  
• Positive demographic trends and strategic capital management may enhance shareholder value and strengthen financial flexibility.
  
• Corebridge faces risks due to interest rate reliance, mortality rate variability, lagging investment returns, and complex international capital strategies potentially impacting growth and profitability.

Catalysts

Provides retirement solutions and insurance products in the United States.

• Corebridge Financial's launch of a registered index-linked annuity (RILA), which expanded its annuity platform, is expected to drive future revenue growth due to strong demand and distribution partner interest, potentially increasing future earnings.
  
• The company's investment in further digitization and modernization of its finance and actuarial capabilities aims to enhance operational efficiency, which could lead to improved net margins and cost savings over time.
  
• Corebridge's focus on balance sheet optimization, including expanding its Bermuda strategy, is expected to drive higher returns on capital and enhance financial flexibility, which could positively impact future earnings.
  
• The positive demographic trends, such as a growing retirement-aged population and a life insurance protection gap, provide strong tailwinds for Corebridge's market-leading businesses, potentially increasing future revenue.
  
• Corebridge's capital management strategy, which includes ongoing buybacks and significant capital returns to shareholders, is expected to positively impact EPS and enhance long-term shareholder value.

Corebridge Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corebridge Financial's revenue will grow by 16.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.8% today to 13.2% in 3 years time.
• Analysts expect earnings to reach $3.3 billion (and earnings per share of $6.91) by about November 2027, up from $-1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.6x on those 2027 earnings, up from -13.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 5.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Corebridge Financial Future Earnings Per Share Growth

Risks

• Corebridge's reliance on the current interest rate environment, especially the middle-to-long end of the yield curve, may pose a risk if interest rates significantly change, impacting revenue and spread income.
  
• The potential for short-term pressure on spread income due to declining short-term interest rates, as noted by management, could negatively affect earnings.
  
• The unpredictability and variability in mortality rates, despite favorable experience, can introduce volatility in the life insurance segment, potentially impacting margins and profitability.
  
• Heavy reliance on alternative investment returns, which did not meet long-term expectations recently, could affect overall investment income if macroeconomic conditions pressure these returns in the future.
  
• Capital management strategies involving international operations, such as the Bermuda strategy, may be complex and carry execution risk, possibly affecting long-term earnings growth and shareholder returns.

Valuation

• The analysts have a consensus price target of $36.23 for Corebridge Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $33.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $25.1 billion, earnings will come to $3.3 billion, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 8.1%.
• Given the current share price of $30.43, the analyst's price target of $36.23 is 16.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.