Share Buybacks And Fixed Maturity Investments Will Sustain Future Earnings Stability

Key Takeaways

• Accelerated growth in life and health insurance premiums and agent expansion indicates potential enhanced revenue and earnings in the coming years.
  
• Share repurchases and stable investment strategies aim to bolster return on equity, earnings per share, and overall financial stability.
  
• Potential profitability threats from increased claim costs, regulatory investigations, investment losses, and higher expenses could strain margins and undermine revenue growth.

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's life insurance operations expect premium revenue growth to accelerate to 4.5% to 5% in 2025, up from 4% in 2024, with life underwriting margins anticipated between 40% and 42%. This indicates an expected increase in revenue and potentially improved net margins.
  
• Health insurance premium revenue is projected to grow between 7.5% to 8.5% in 2025, compared to 6.5% in 2024, with a health underwriting margin as a percent of premium forecasted to be between 25% and 27%. This should support revenue growth and potentially stabilize margins if claim cost pressures are managed.
  
• The growth in producing agent count across various divisions, with mid-single-digit to low-double-digit growth expected in 2025, suggests a potential increase in sales and commission-based revenues, supporting both revenue and earnings growth.
  
• Expected share repurchases of $600 million to $650 million in 2025, driven by increased statutory earnings and reinsurance transactions from 2024, imply a focus on enhancing return on equity and earnings per share.
  
• Globe Life's investment operations are focused on maintaining a stable yield with investments in fixed maturities and high-return commercial mortgages, aiming for steady net investment income, which should positively impact overall earnings stability.

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 18.5% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $16.39) by about March 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 9.3x on those 2028 earnings, down from 9.8x today. This future PE is lower than the current PE for the GB Insurance industry at 13.2x.
• 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 6.55%, as per the Simply Wall St company report.

Globe Life Future Earnings Per Share Growth

Risks

• Increase in health underwriting margin pressures due to higher claim costs, which might reduce overall profitability in the health insurance sector, thus potentially impacting net margins.
  
• Decline in net life sales in the direct-to-consumer division by 11% due to reduced marketing spend and higher distribution costs, which could lead to reduced revenue growth.
  
• Ongoing investigations by the SEC, DOJ, and EEOC could result in future legal or financial liabilities, potentially impacting earnings and shareholder confidence if adverse outcomes materialize.
  
• Moderating excess investment income and unrealized losses in the investment portfolio due to interest rate fluctuations could reduce the overall returns on the company's investment operations, impacting net income.
  
• Higher administrative expenses driven by increased IT, employee, and legal costs could pressure operating margins, resulting in a reduced net margin if these costs are not managed effectively.

Valuation

• The analysts have a consensus price target of $141.091 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 $115.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.6 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of $125.49, the analyst price target of $141.09 is 11.1% 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.