Investments In Health Solutions And OneAmerica Integration Will Improve Competitiveness In 2025

Key Takeaways

• Voya Financial's strategic initiatives in underwriting, acquisitions, and Health Solutions aim to enhance net margins, earnings, and revenue growth in the coming years.
  
• Capital management strategies, including share repurchases and growth investments, are designed to boost shareholder value and increase excess capital.
  
• Unfavorable claims and higher loss ratios in Health Solutions and volatile Wealth Solutions integration could affect earnings, margins, and revenue stability.

Catalysts

Provides workplace benefits, and savings solutions and technologies in the United States and internationally.

• Voya Financial is implementing corrective actions in their Stop Loss business, including significant rate increases and improved underwriting risk selection, which should lead to a material improvement in net underwriting results in 2025, enhancing net margins.
  
• The successful integration of the OneAmerica acquisition is expected to contribute $200 million in revenue and $75 million in incremental operating earnings in 2025, positively impacting earnings and revenue growth.
  
• Voya Investment Management's continued commercial momentum and robust earnings growth, driven by diversified and globally distributed investment strategies, have demonstrated a 4% organic growth rate in 2024, which could propel further revenue increases.
  
• Strategic investments in Health Solutions, particularly in enhanced leave management capabilities, are anticipated to improve competitiveness and client retention, which could drive revenue growth through better market positioning.
  
• The company's capital management strategy, including significant share repurchases and investments in growth initiatives like Sconset Re, is expected to enhance shareholder value and contribute to improved earnings and excess capital generation in 2025 and 2026.

Voya Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Voya Financial's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.8% today to 12.5% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $11.89) by about March 2028, up from $626.0 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 8.2x on those 2028 earnings, down from 10.3x 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 5.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Voya Financial Future Earnings Per Share Growth

Risks

• Unfavorable claims experience and higher loss ratios in the Health Solutions segment, particularly in the Stop Loss business, have led to increased underwriting and pricing actions, potentially impacting future earnings and margins.
  
• Lower prepayment income due to the higher interest rate environment is expected to persist, reducing net revenues from spread-based assets, which could impact overall earnings.
  
• The integration of OneAmerica adds complexity and potential volatility to operations and net flows in Wealth Solutions, possibly affecting retention and revenue stability.
  
• Significant investment in leave management and disability administration capabilities could increase short-term expenses, impacting net margins before realizing potential revenue enhancements in subsequent years.
  
• Divestment flows and changes in client assets in the Investment Management segment could offset growth from new asset inflows, potentially impacting net revenue growth and earnings.

Valuation

• The analysts have a consensus price target of $81.583 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 $94.0, 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 2028, revenues will be $8.2 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 8.4%.
• Given the current share price of $67.71, the analyst price target of $81.58 is 17.0% 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.