J.P. Morgan analyst Jimmy Bhullar wrote that he prefers Torchmark Corp. over Aflac Inc. among "high-quality" and "defensively-positioned" life insurers following the two entities recent stock performance.
Bhullar upgraded Torchmark to "overweight" from "neutral," expecting the insurer to outperform with robust return on equity, improvement in direct response margins and sales, and steady share buybacks. He noted that there were concerns about the insurer's performance amid a deteriorating credit environment and a decline in union membership, which led to a sharp stock pullback. However, he wrote that the insurer is better positioned to weather deterioration in macro conditions compared to peers.
He maintained his price target at $88. He raised his EPS estimates to $6.15 from $6.14 for 2018, to $6.61 from $6.59 for 2019 and to $7.08 from $7.02 for 2020.
Bhullar downgraded Aflac to "neutral" from "overweight," writing that the stock's valuation is less attractive after significant outperformance starting early 2017. His long-term view of the insurer remains upbeat, but he expects mixed near-term results marked by robust overall margins, healthy U.S. sales and weak Japan sales.
He maintained his price target of $51 for Aflac. His EPS estimate for 2018 is $4.08. Due to recent yen appreciation and greater accretion from share buybacks because of a lower stock price, he raised his EPS estimates to $4.15 from $4.10 for 2019 and to $4.36 from $4.30 for 2020.