Launch Of RILA And Digitization Will Strengthen Future Market Position

Key Takeaways

• Customized products like RILA could drive revenue growth by meeting diverse customer demands and expanding the product range.
  
• Balance sheet optimization and expense reduction initiatives aim to improve asset returns, operational costs, and net margins.
  
• Persistent inflation and volatile markets threaten revenue, while interest rate sensitivity in annuities adds risk, emphasizing the need for effective hedging and retention strategies.

Catalysts

Provides retirement solutions and insurance products in the United States.

• Corebridge Financial's strategy of launching new customized products, such as the registered index-linked annuity (RILA), aims to meet diverse customer demands and expand their product range, potentially driving revenue growth.
  
• Their focus on balance sheet optimization, including the use of Bermuda reinsurance strategies, seeks to improve asset returns and create capital efficiencies, which could positively impact net margins.
  
• Ongoing expense reduction initiatives, such as achieving $400 million of run rate savings with a continued focus on digitization, are likely to lower operational costs, supporting improved net margins and earnings.
  
• The company is actively managing capital with initiatives like share repurchases and increased dividends, which are expected to enhance earnings per share (EPS) through efficient capital allocation.
  
• Corebridge's commitment to increasing dividends from its insurance companies by 5% to 10% in 2025 is expected to boost shareholder returns and could drive future earnings growth.

Corebridge Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corebridge Financial's revenue will grow by 9.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 12.7% in 3 years time.
• Analysts expect earnings to reach $3.1 billion (and earnings per share of $6.62) by about March 2028, up from $2.2 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 7.1x on those 2028 earnings, down from 8.0x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.42%, as per the Simply Wall St company report.

Corebridge Financial Future Earnings Per Share Growth

Risks

• Persistent inflation and volatile markets could negatively impact Corebridge's revenue and earnings, particularly if market conditions worsen or inflation remains high over the long term.
  
• The prospect of lower interest rates may pose a temporary challenge for Corebridge, potentially impacting net margins due to the effect on their floating rate portfolio and base spread income.
  
• Surrender rates in Individual Retirement are expected to increase, which could lead to higher outflows and affect revenue growth if not offset by new inflows or effective retention strategies.
  
• Pressure on base spread income due to changes in short-term interest rates and associated hedging activities may impact earnings, especially if the impact persists longer than anticipated.
  
• The dependency on strong performance from fixed and index annuities, which are sensitive to interest rate environments, may create revenue and earnings volatility if market interest rates or competition significantly shift.

Valuation

• The analysts have a consensus price target of $38.571 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 $43.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.3 billion, earnings will come to $3.1 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 8.4%.
• Given the current share price of $32.17, the analyst price target of $38.57 is 16.6% 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.