Morgan Stanley analyst Nigel Dally initiated coverage of Brighthouse Financial Inc at "equal weight," with a $74 price target.

Brighthouse makes up most of MetLife's retail operations, Dally wrote in an Aug. 14 note. In his view, the company is "highly levered" to macroeconomic conditions like equity markets and interest rates due to Brighthouse's "sizable" exposure to variable annuities and universal life secondary guarantee. Dally said he expects results to be volatile and returns to remain under pressure, as the company faces a near-term growth challenge.

The analyst noted that the company is well-capitalized and has an experienced management team. Brighthouse is strategically shifting its business mix away from more macro-sensitive product segments and it has the potential for margin expansion through expense initiatives, he added.

Dally's EPS estimates are $9.00 for 2017 and $8.95 for 2018.