Canada Life Agreement And Sales Force Growth Will Shape Positive Future

Key Takeaways

• Growth in the life license sales force and strong sales in investment products signal potential positive impacts on future revenue.
  
• Cash flow improvements enable share repurchases and investments, potentially boosting earnings per share through buybacks.
  
• Reliance on favorable market conditions and strategic shifts could introduce volatility and impact future revenue and profitability amid changing assumptions and market pressures.

Catalysts

Provides financial products and services to middle-income households in the United States and Canada.

• The company's sustained momentum in recruiting and licensing, driven by discounted licensing fees and effective communication of Primerica's opportunities, suggests a potential for continued growth in its life license sales force, likely impacting future revenue positively.
  
• Strong sales growth in the Investment and Savings Products segment, supported by favorable equity market conditions and expanded product offerings, points to an expected increase in revenues from this area.
  
• Enhanced cash flow generation allowed for significant share repurchases and dividends, indicating potential for future increases in EPS through continued buybacks.
  
• The new distribution agreement with Canada Life to offer segregated funds in Canada expands product options and can drive future revenue growth in the Canadian market.
  
• The re-entry into the Canadian mortgage market and improved U.S. mortgage volumes offer potential revenue growth, especially if interest rates stabilize or decrease.

Primerica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Primerica's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.0% today to 22.2% in 3 years time.
• Analysts expect earnings to reach $755.6 million (and earnings per share of $24.17) by about December 2027, up from $689.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2027 earnings, up from 13.3x today. This future PE is greater than the current PE for the US Insurance industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 2.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Primerica Future Earnings Per Share Growth

Risks

• The company's strong reliance on favorable equity markets to bolster investor confidence and drive results in the investment and savings business poses a risk if market conditions turn negative, potentially impacting revenue and profits.
  
• Adjustments to actuarial assumptions that added $23 million to pretax income highlight a dependency on favorable assumptions. Changes in these assumptions could introduce volatility and impact net margins.
  
• The exit from the senior health business with e-TeleQuote Inc. implies a strategic shift and potential disruption. If transitioning to new strategies does not succeed, it could affect overall earnings.
  
• Persistency issues in the Term Life segment due to higher lapses, driven by cost of living pressures on middle-income families, could limit adjusted direct premiums (ADP) growth, impacting future revenue streams.
  
• The company's mortgage business growth is contingent on favorable interest rate movements. If interest rates remain high, refinancing opportunities may diminish, restricting revenue expansion in this segment.

Valuation

• The analysts have a consensus price target of $311.5 for Primerica 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 $345.0, and the most bearish reporting a price target of just $283.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.4 billion, earnings will come to $755.6 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.2%.
• Given the current share price of $275.64, the analyst's price target of $311.5 is 11.5% 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.