Digital Investments And RILA Expansion Will Secure Lasting Stability

Key Takeaways

• Strategic investments in digital capabilities and expanded product offerings in RILA are expected to drive long-term revenue and EPS growth.
  
• Efficient capital management, including share repurchase and asset liability strategies, aims to enhance shareholder returns and stabilize revenue amidst market changes.
  
• Macroeconomic uncertainty, market demand shifts, and strategic execution risks could challenge Corebridge Financial's revenue growth and strain margins amidst rising operational costs.

Catalysts

Provides retirement solutions and insurance products in the United States.

• Corebridge Financial is poised for growth through its strategic pillars, which include investing in digital capabilities and expanding product offerings, particularly in the growing RILA market, which should drive revenue and EPS growth.
  
• The company is optimizing its balance sheet through proactive asset liability management and reinsurance strategies, including recent reserve cessions to affiliated reinsurers in Bermuda. This is designed to enhance capital efficiency and increase shareholders' equity and return on equity (ROE).
  
• Investments in digital automation and operational efficiencies, including a voluntary early retirement program, are expected to reduce the expense base, potentially improving net margins as the company creates capacity for new skills and capabilities.
  
• Active capital management, including a share repurchase program that reduced the share count by over 10% in the past 12 months, is aimed at providing attractive returns to shareholders and is expected to drive EPS growth long-term.
  
• Corebridge has maintained a strong balance sheet and consistent cash generation, raising expectations to deliver a 10% to 15% annual run rate EPS increase over the long term, supported by ongoing shifts from spread to fee-based income, particularly in retirement services, which enhances revenue stability amidst market fluctuations.

Corebridge Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corebridge Financial's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 12.4% in 3 years time.
• Analysts expect earnings to reach $3.0 billion (and earnings per share of $6.54) by about May 2028, up from $688.0 million 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 6.7x on those 2028 earnings, down from 25.2x today. This future PE is lower than the current PE for the US Diversified Financial industry at 14.2x.
• 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 8.48%, as per the Simply Wall St company report.

Corebridge Financial Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainty and heightened volatility can create challenges for Corebridge Financial, potentially impacting revenue generation and increasing operational costs.
  
• A potential slowdown in market demand for certain financial products could negatively affect premiums, deposits, and overall revenues, particularly if competitive pressures rise.
  
• The transformation to a fee-based business model from a spread-based model in the Group Retirement segment carries execution risk, which could impact net margins if not managed effectively.
  
• Sensitivity to interest rates and equity market fluctuations may impact core earnings and returns on alternative investments, affecting earnings growth.
  
• High levels of planned investment in new capabilities and the reshaping of the workforce could lead to increased operating expenses, potentially squeezing net margins if not offset by sufficient revenue growth.

Valuation

• The analysts have a consensus price target of $35.0 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 $39.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.1 billion, earnings will come to $3.0 billion, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $31.29, the analyst price target of $35.0 is 10.6% 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.