Sandler O'Neill analyst John Barnidge upgraded Brighthouse Financial Inc. and MetLife Inc. to "buy" from "hold," following the recent "overdone" sell-off in the insurance sector that led to a disconnect between fundamental trends and valuations.
"Recent share price weakness attributable to what we believe resembles irrational selling, liquidations to satisfy fund redemptions and tax loss selling has created an opportunity for upside potential in our opinion," Barnidge wrote in his research notes.
He acknowledged that economic growth appears to be moderating but he does not expect a recession in the near term. Despite a recent decline in yields, he expects the increase in rates to boost Brighthouse Financial's and MetLife's investment income. He projects "noisy" fourth-quarter earnings for Brighthouse Financial and MetLife, but he said investors will realize that the insurers' underlying businesses remain intact and that their valuations are "exceedingly attractive."
Barnidge maintained his $34 price target on Brighthouse Financial but raised his price target on MetLife to $46 from $43.