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Goldman Sachs initiates coverage of life insurance sector

Goldman Sachs analyst Alex Scott initiated coverage of the life insurance sector with a "neutral" view, writing that the sector is in "the earlier stages of a restructuring."

Scott set Athene Holding Ltd.'s initial rating at "buy" with a price target of $63. Scott attributed the rating to Athene's EPS growth potential through developing its established business lines and acquiring smaller companies. Scott's 2017, 2018 and 2019 EPS estimates for the company are $5.31, $5.45 and $5.99 respectively.

He started coverage of MetLife Inc. with a "buy" rating, writing that the company is the "best opportunity in life insurance" given expected improvement in return on equity, expected deployment of excess capital and more stable earnings results. Scott set his price target for the company at $61 and expects full-year EPS to be $4.72 for 2017, $4.83 for 2018 and $5.44 for 2019.

He initiated coverage of Reinsurance Group of America Inc. with a "buy" rating, saying the company has "above-average positioning for top-line and book value growth" along with minimal product exposures that have great interest rate risk in a "low-for-longer" rate scenario. Scott set a target price for the company at $153, and he estimates 2017, 2018 and 2019 EPS will be $10.48, $11.17 and $11.90, respectively.

Voya Financial Inc. was assigned a "buy" rating by Scott, who called the company an "interesting value opportunity with good upside." Scott said the company is well-positioned now for several quarters of "bigger margin inflection" from its expense plan. His price target for the company is $46. He expects 2017 EPS to be $3.40, 2018 EPS to be $4.40 and 2019 EPS to be $5.19.

Scott started coverage of American Equity Investment Life Holding Co. with a "neutral" rating, citing its "relatively simple" and scalable business model as positive for the company. The company could also make for a potential acquisition target at a premium price, he added. Scott set a price target for the company of $29 and estimates 2017, 2018 and 2019 EPS will be $2.66, $2.65 and $2.74, respectively.

He rated Aflac Inc. at "neutral," saying cash flows from the company's Japanese business should pick up steam in the coming years while margins and return on equity should also improve. Scott set a price target for the company at $88 and expects 2017, 2018 and 2019 EPS to be $6.80, $6.77 and $7.17, respectively.

He initiated Brighthouse Financial Inc. with a "neutral" rating, calling the company a "good value option" as it establishes itself as its own after its August spinoff from MetLife. His price target for the company is $63. His 2017, 2018 and 2019 EPS estimates are $9.28, $8.74 and $9.18, respectively.

He rated CNO Financial Group Inc. at "neutral," citing caution over the company's ability to successfully transfer risk from its long-term care block. His price target for the company is $24, and his 2017, 2018 and 2019 EPS estimates are $1.62, $1.70 and $1.85, respectively.

Principal Financial Group Inc. was assigned a "neutral" rating by Scott and a price target of $70. Scott said the company's entry into China's pension market is a strong growth prospect, but he warned that potential headwinds could await the company as it has to obtain a pension license and there are limited growth opportunities there. Scott estimates the company's 2017, 2018 and 2019 EPS to be $5.21, $5.51 and $5.89, respectively.

Scott rated Prudential Financial Inc. at "neutral," adding that the current valuation is "not particularly expensive" and could hold some upside if the company can consistently generate "solid operating earnings." Scott said the company's Japanese business could bring headwinds to earnings in the future as well though. His price target for the company is $114. Scott's EPS estimates for 2017, 2018 and 2019 are $10.20, $11.16 and $11.68, respectively.

He started coverage of Torchmark Corp. at a "neutral" rating saying the capital situation at the insurer is better than most analysts believe. Scott added that Torchmark could make for an attractive acquisition target despite its high valuation. Scott's price target for the company is $83. He expects EPS for 2017, 2018 and 2019 to be $4.72, $4.92 and $5.32, respectively.

While he set Lincoln National Corp.'s initial rating at "sell," Scott said the rating is within the context of a "neutral" coverage. Scott believes the pressure on the company's life insurance block has not fully appreciated in valuation or earnings growth estimates. His price target for the company is $71. He expects 2017, 2018 and 2019 EPS to be $7.38, $7.54 and $8.13, respectively.

Scott initiated coverage of Unum Group with a "sell" rating, citing the company's current valuation, which he said does not "adequately reflect the risks in the business." His price target for the company is $48, and he expects EPS of $4.19 for 2017, $4.39 for 2018 and $4.66 for 2019.