Rising Annuity Sales Drive Growth Amid Capital Challenges And Competitive Pressures

Key Takeaways

• Expanding Jackson's distribution network may boost sales short-term, but increased competition and distributor incentives could pressure net margins.
  
• Growth strategies in RILA markets and reliance on capital return could strain cash reserves and future earnings amid volatile conditions.
  
• Jackson Financial's diversified growth, capital generation, and strategic partnerships highlight potential for strong earnings, resilient financial management, and increased shareholder returns.

Catalysts

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

• Jackson Financial's significant increase in annuity sales, particularly a 59% year-over-year growth in the third quarter and a notable ramp-up in fixed and fixed indexed annuity sales, could create inflated investor expectations for future revenue growth despite potential market volatility and interest rate changes affecting future sales.
  
• The expansion of Jackson's distribution network, including launching new products with major financial partners like JPMorgan Wealth Management, might increase short-term sales but could lead to elevated competition and pressure on net margins if high distributor incentives are necessary to maintain the sales momentum.
  
• The strategy to pursue growth in the Retirement Income Leveraged Asset (RILA) market could be capital intensive and impact future earnings, especially if the market conditions shift unfavorably or if the ongoing costs of hedging these products rise due to market volatility.
  
• Although the company emphasizes sustainable capital generation, the reliance on capital return strategies, such as dividends and share repurchases, suggests a potential future drain on cash reserves impacting earnings, especially if operating performance doesn't consistently match expectations.
  
• Jackson's move to maintain high statutory capital levels and generate capital through mechanisms like Brooke Re might imply future earnings may not be as straightforwardly available for reinvestment in growth opportunities, as fulfilling regulatory and stability commitments could overtake immediate shareholder return priorities.

Jackson Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jackson Financial's revenue will grow by 25.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -25.0% today to 9.6% in 3 years time.
• Analysts expect earnings to reach $750.8 million (and earnings per share of $11.01) by about November 2027, up from $-1.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.0x on those 2027 earnings, up from -8.1x today. This future PE is lower than the current PE for the US Diversified Financial industry at 17.8x.
• Analysts expect the number of shares outstanding to decline by 2.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Jackson Financial Future Earnings Per Share Growth

Risks

• Jackson Financial reported increased annuity sales and diversified growth, indicating potential for ongoing revenue enhancement due to successful new product launches and partnership expansions with institutions like JPMorgan. This growth may contradict expectations of declining share prices.
  
• The company has effectively utilized its innovative product offerings, particularly in the RILA segment, achieving record sales and market positioning among the top 5 providers, which suggests strong earnings prospects in that segment.
  
• Jackson Financial has demonstrated robust capital generation and stability, supported by the formation of the captive, Brooke Re, and ongoing net positive capital generation, which could lead to sustained shareholder returns and a potential increase in share value.
  
• The firm’s strong stock repurchase program and increased capital return to shareholders highlight its effective capital management strategy, which may help maintain or improve per-share earnings metrics.
  
• An effective hedging position and decreased volatility in results due to strategic initiatives like Brooke Re suggest resilient financial management, potentially leading to consistent operating earnings growth contrary to a decrease in share price.

Valuation

• The analysts have a consensus price target of $96.2 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 $117.0, and the most bearish reporting a price target of just $74.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $7.8 billion, earnings will come to $750.8 million, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $109.96, the analyst's price target of $96.2 is 14.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.