Is Brighthouse Financial’s 39% Surge Backed by Real Value After Recent Product Expansions?

• Wondering if Brighthouse Financial stock is truly a bargain or just riding the latest market hype? You're in the right place as we dig into what's driving its value.
• After a recent impressive 39.1% surge over the past month and a 29.9% gain in the last year, shares are certainly catching the eye of both curious investors and market watchers.
• This big move has come as insurers in general outperformed after sector tailwinds and positive market sentiment. Brighthouse has also made headlines for strategic partnerships and expanded product offerings, which has further fueled investor interest.
• Currently, Brighthouse Financial scores a 4 out of 6 on our undervaluation checks, meaning it passes most but not all of our value tests. Let's take a closer look at how these valuation methods stack up, and why there may be an even more insightful way to assess fair value by the end of this article.

Brighthouse Financial delivered 29.9% returns over the last year. See how this stacks up to the rest of the Insurance industry.

Approach 1: Brighthouse Financial Excess Returns Analysis

The Excess Returns model evaluates a stock by comparing the returns a company generates on its equity, after accounting for the cost of that equity. This approach helps investors assess whether Brighthouse Financial is creating true shareholder value over and above what investors could expect elsewhere for a comparable level of risk.

For Brighthouse Financial, the data tells an interesting story. The company’s Book Value stands at $111.33 per share, with a Stable EPS of $7.74 per share. This figure is drawn from the median return on equity achieved over the past five years. The Cost of Equity is calculated at $10.29 per share, resulting in an Excess Return of $-2.55 per share. In practical terms, this means Brighthouse Financial is currently generating a return on equity of 7.41% on average, which does not quite cover its equity cost.

The Stable Book Value, based on future estimates from analysts, is $104.49 per share, suggesting measured confidence in the company’s capital base going forward. Despite negative excess returns, the intrinsic value calculated by this method is closely in line with the current market price. The model indicates the stock is only about 0.4% undervalued compared to its estimated fair value.

Result: ABOUT RIGHT

Brighthouse Financial is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Brighthouse Financial.

Approach 2: Brighthouse Financial Price vs Earnings

The price-to-earnings (PE) ratio is often seen as the go-to valuation metric for established, consistently profitable companies like Brighthouse Financial. By showing how much investors are willing to pay per dollar of current earnings, the PE ratio helps gauge whether a stock is expensive or reasonable compared to its profitability.

What constitutes a “normal” or “fair” PE ratio depends on several factors, most notably the company’s growth prospects and risk profile. Higher growth expectations or lower perceived risk can justify a higher multiple. Conversely, companies facing headwinds or increased uncertainty generally warrant a lower PE.

Currently, Brighthouse Financial has a PE ratio of 4.33x. This is sharply below both the insurance industry average of 12.61x and the peer average of 9.81x. On paper, this positions the stock as considerably cheaper than its direct competitors and the broader market for insurers.

However, Simply Wall St’s proprietary Fair Ratio provides an even more nuanced benchmark by weighing factors like Brighthouse Financial’s earnings growth, industry characteristics, profit margins, market capitalization, and risk profile. This Fair Ratio is currently set at 14.02x, offering a holistic view beyond surface-level comparisons.

Unlike traditional benchmarks, the Fair Ratio adapts to the company’s specific context and makes it a more meaningful gauge of fair value than simply comparing Brighthouse Financial to industry or peer averages.

Given that the current PE of 4.33x is well below the Fair Ratio of 14.02x, Brighthouse Financial stock appears markedly undervalued based on this approach.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Brighthouse Financial Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personal story behind the numbers, a way to connect what you believe about Brighthouse Financial’s future to actual financial forecasts and to the fair value you assign the company. Narratives empower you to lay out your assumptions about revenue, profit margins, and risks, making your outlook transparent and actionable. Available to millions of investors right on Simply Wall St’s Community page, Narratives help you decide when to buy or sell by quickly comparing your Fair Value to the latest share price.

Best of all, Narratives dynamically update as new information, such as earnings releases or major news, comes in, ensuring your investment story evolves with the company. For example, one investor’s Narrative for Brighthouse Financial may highlight strong new product demand and estimate a fair value as high as $72 per share, while another might caution about ongoing losses and set their fair value much lower at $42. Narratives offer a powerful, accessible way to see and share these different investment perspectives, so you can make smarter decisions based on your unique view of Brighthouse Financial’s future.

Do you think there's more to the story for Brighthouse Financial? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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