Cost Management And Agent Expansion Will Strengthen Future Market Position

Key Takeaways

• Strong growth in life premium revenue and agent count signals positive future sales and revenue expansion.
  
• Focus on cost management and favorable investment strategies boosts underwriting margins and net investment income.
  
• Decline in life premiums, rising expenses, and regulatory challenges suggest potential revenue pressures and risks to future earnings and profitability.

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 is expected to have strong growth in life premium revenue, driven by a 4% to 4.5% increase in premium revenue growth for 2024, which will likely enhance revenue streams.
  
• The company is experiencing a significant rise in agent count, particularly with a 10% increase in American Income and 14% in Liberty National, suggesting future sales growth as agent count is a leading indicator. This will positively impact revenue growth.
  
• The investment in technology and middle management growth at Liberty National has been driving agent count growth, which is expected to continue boosting future sales and revenue growth.
  
• The company's strategy to focus on maximizing underwriting margin by managing costs in marketing spend and distribution is improving life underwriting margins significantly, potentially increasing net margins and earnings.
  
• Globe Life is benefiting from a favorable interest rate environment and strategic reinvestment strategies, leading to a projected 7.5% to 8% growth in net investment income for 2024, which should improve overall earnings.

Globe Life Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Globe Life's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.0% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $15.81) by about December 2027, up from $1.1 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 10.0x on those 2027 earnings, up from 8.1x today. This future PE is lower than the current PE for the GB Insurance industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 2.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.39%, as per the Simply Wall St company report.

Globe Life Future Earnings Per Share Growth

Risks

• The decline in direct-to-consumer life premiums and net life sales, attributed to reduced marketing spend, could impact future revenues and profit margins.
  
• The remeasurement loss related to health insurance assumptions suggests potential volatility, potentially affecting health underwriting margins and long-term profitability.
  
• Increase in administrative expenses due to IT and legal costs might put downward pressure on net margins if these expenses continue to rise.
  
• Challenges in managing lap rates in times of economic strain suggest potential revenue pressures, especially if economic conditions worsen and customer retention weakens.
  
• Growing regulatory and legal challenges, including ongoing investigations and higher legal expenses, could pose risks to future earnings and impact overall financial performance.

Valuation

• The analysts have a consensus price target of $132.9 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 $105.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.6 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.4%.
• Given the current share price of $105.78, the analyst's price target of $132.9 is 20.4% 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.