Partnership With JPMorgan Chase Will Expand Market Reach And Improve Efficiency

Key Takeaways

• Diversification and partnerships are driving growth, with product innovations and stronger distribution relationships enhancing market reach and future revenue potential.
  
• Economic hedging and technology investments boost capital stability and operational efficiency, likely increasing net margins and optimizing costs.
  
• Reliance on actuarial assumptions and regulatory changes could strain liquidity and earnings, with variable annuity outflows and interest rates posing additional risks.

Catalysts

Through its subsidiaries, provides suite of annuities to retail investors in the United States.

• Jackson Financial has successfully diversified its product offerings with significant growth in its RILA and fixed annuity products, leading to increased sales and higher potential for future revenue growth.
  
• The company expects sustained momentum with a projected 10% to 25% increase in capital return targets for 2025, providing increased shareholder value and potentially higher earnings per share.
  
• Jackson’s more economic hedging approach is yielding greater capital stability, potentially leading to higher net margins through improved management of economic risks.
  
• The partnership with JPMorgan Chase for distribution and new product innovations, such as the addition of a guaranteed minimum accumulation benefit to their variable annuities, are expected to expand market reach and drive further revenue growth.
  
• Continuous investments in technology and service excellence, including initiatives like paperless annuity replacements, are enhancing operational efficiency and could lead to improved earnings by optimizing costs and reinforcing distribution relationships.

Jackson Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jackson Financial's revenue will grow by 30.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.9% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $826.0 million (and earnings per share of $12.45) by about March 2028, down from $902.0 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 9.8x on those 2028 earnings, up from 6.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 4.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.36%, as per the Simply Wall St company report.

Jackson Financial Future Earnings Per Share Growth

Risks

• The company's reliance on actuarial assumptions and the need for regular reviews could lead to financial volatility if actual experience deviates significantly, potentially impacting net margins and earnings.
  
• Increased outflows in variable annuity products due to older policy vintages exiting surrender periods and attractive alternatives could result in reduced revenue from these product lines.
  
• Elevated surrender rates and the heightened possibility of policy exchanges in a high-interest-rate environment could strain capital generation and liquidity, affecting future earnings stability.
  
• The potential volatility in Brooke Re's capital due to macroeconomic factors and assumptions, despite current buffers, could pose risks to future distributions and impact holding company liquidity.
  
• The continued impact of regulatory changes and the requirement to maintain a minimum operating capital within Brooke Re might constrain excess capital, affecting the company's ability to consistently return capital to shareholders over time.

Valuation

• The analysts have a consensus price target of $100.2 for Jackson 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 $118.0, and the most bearish reporting a price target of just $88.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.4 billion, earnings will come to $826.0 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $84.48, the analyst price target of $100.2 is 15.7% 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.