We Will Invest In Data Analytics For Efficient Underwriting

Key Takeaways

• Growth in agent count and technology investments are expected to boost sales, reduce costs, and enhance future revenue generation.
  
• Premium increases and share repurchase programs should stabilize margins and increase earnings per share.
  
• Rising claim costs and regulatory inquiries could pressure Globe Life's earnings, while declining sales and investment income pose additional risks to financial performance.

Catalysts

Through its subsidiaries, provides various life and supplemental health insurance products, and annuities to lower middle- and middle-income families in the United States.

• Globe Life expects continued growth in agent count across its business divisions, which serves as a leading indicator for future sales growth, impacting future revenue generation.
  
• Anticipated life underwriting margin improvements driven by favorable mortality trends and updated mortality assumptions could enhance the company's net margins.
  
• Investment in technology and data analytics is expected to reduce operational costs and improve efficiency, which could positively affect net margins in the long term.
  
• Premium rate increases, particularly in the health segment, are projected to offset higher claim costs and utilization, thereby stabilizing or improving health margins over time.
  
• Ongoing share repurchase programs and the potential for reduced outstanding commercial paper balances are expected to deliver higher earnings per share (EPS) by lowering the share count and optimizing capital structure.

Globe Life Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Globe Life's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.3% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $16.96) by about May 2028, up from $1.1 billion 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 9.0x on those 2028 earnings, down from 9.4x today. This future PE is lower than the current PE for the GB Insurance industry at 14.4x.
• 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 6.36%, as per the Simply Wall St company report.

Globe Life Future Earnings Per Share Growth

Risks

• Rising claim costs in the United American segment due to higher health utilization could lead to reduced health underwriting margins, potentially impacting net income negatively.
  
• Declining sales and reduced marketing spend in the direct-to-consumer division may affect overall revenue growth and constrain net margins due to increased advertising costs without proportional revenue returns.
  
• Excess investment income decreased year-over-year, and expected flat net investment income for the year could pressure earnings, especially if short-term interest rates remain unfavorable.
  
• The presence of ongoing regulatory inquiries by the SEC and DOJ could pose legal and operational risks, potentially leading to unforeseen costs or disruptions impacting overall financial performance.
  
• Health premiums are facing challenges in maintaining profitability due to procedure-related claim increases. If premium rate increases fail to offset these higher claims, health segment revenue and margins may continue to suffer.

Valuation

• The analysts have a consensus price target of $140.727 for Globe Life 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 $188.0, and the most bearish reporting a price target of just $111.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.7 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 9.0x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $120.34, the analyst price target of $140.73 is 14.5% 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.