Elevating Wealth And Workplace Solutions Spurs Optimistic Revenue And Profit Forecasts

Key Takeaways

• A shift towards high-margin businesses and specialized focus in Workplace Solutions and Investment Management aims to enhance revenue growth and profitability.
  
• Strategic adjustments in pricing for Health and investments in lead management and global strategies are intended to improve net margins and sustainable growth.
  
• Reliance on fee-based revenues and pricing strategy adjustments amidst volatile market conditions could negatively impact Voya Financial's margins and premium growth.

Catalysts

Engages in the provision of workplace benefits and savings products in the United States and internationally.

• Strategic execution and specialized focus on Workplace Solutions and Investment Management are aimed at stimulating notable revenue growth and diversification, enhancing the company's potential for robust commercial momentum and profitability in these sectors.
  
• Management's active approach to addressing higher loss ratios in Health by adjusting pricing on new business and renewals is poised to result in improved net margins by 2025, thereby positively affecting the company's overall earnings.
  
• Enhanced dividends supported by strong excess capital generation and high free cash flow conversion signal confident growth expectations and a shareholder-friendly capital allocation policy, likely to contribute towards EPS growth.
  
• Vigorous growth in managed account revenues and the expansion of the Retail Wealth Management platform emphasize an increasing focus on higher-margin businesses, expected to drive substantial revenue and margin expansion in the wealth segment.
  
• Investment in lead management for Health to enhance employer solutions and the introduction of diverse and globally distributed investment strategies in the Investment Management segment are forecasted to spur long-term sustainable growth through improved customer engagement and product offerings, ultimately impacting both top and bottom line positively.

Assumptions

• Analysts are assuming Voya Financial's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $916.7 million (and earnings per share of $11.02) by about September 2027, up from $801.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $806.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2027 earnings, up from 8.6x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 7.05% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Risks

• Higher than target aggregate loss ratios in Health present a risk to net margins, especially if the process of adjusting pricing on new business and renewals does not yield expected improvements.
  
• The transformation of Voya's business and reliance on fee-based revenues, while currently beneficial, could be negatively impacted by volatile market conditions, affecting revenue and margins in their Wealth and Investment Management segments.
  
• The emphasis on improving Stop Loss loss ratios in Health by adjusting pricing strategies poses a risk of reduced premium growth if customers react negatively to higher prices, potentially impacting revenue.
  
• Implementation of a new lead management system for improved customer service in Health may incur upfront costs and operational risks that could affect net margins if the transition does not proceed smoothly or efficiently.
  
• The intended refinancing of $400 million of debt in 2025, while keeping leverage within target ranges, introduces financial risks related to market conditions at the time of refinancing, which could affect net margins and earnings.

Valuation

• The analysts have a consensus price target of $82.21 for Voya 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 $91.0, and the most bearish reporting a price target of just $75.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $8.3 billion, earnings will come to $916.7 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 7.6%.
• Given the current share price of $69.73, the analyst's price target of $82.21 is 15.2% 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.