Goldman Sachs analyst Alex Scott said he is becoming more optimistic on the outlook for life insurers because of encouraging fundamental trends, de-risking opportunities and attractive valuations relative to historical levels.
Scott upgraded Lincoln National Corp. to "neutral" from "sell." He wrote that his assessment of net flow trends in annuities and the runoff value of the insurer merits the upgrade, despite some headwinds in the life insurance business.
He raised his price target on Lincoln National to $70 from $69. He changed his EPS estimate to $8.35 from $8.39 for 2018. His 2019 and 2020 estimates remain at $9.07 and $10.02, respectively.
Scott also acted on Prudential Financial Inc., adding the insurer to Goldman Sachs' conviction list while keeping a "buy" rating on the company's stock. He believes that Prudential Financial presents the best risk/reward in the group.
He wrote that Prudential Financial's business has the most cash flows embedded in the existing business. He expects these flows to become a tailwind for cash flow over the next several quarters.
His price target on Prudential Financial is $121. He changed his EPS estimates on the insurer to $12.18 from $12.13 for 2018, to $13.10 from $13.00 for 2019 and to $14.00 from $13.78 for 2020.
Scott downgraded Torchmark Corp. to "sell" from "neutral" with a price target of $78, citing the worsening sales environment related to declining union membership.
The Supreme Court ruling that prohibits public sector unions from assessing collective bargaining fees on employees who choose to not be union members could negatively impact union membership as the direct monetary benefits of nonmembership become greater, he wrote.
He believes that declining union membership in the public sector will decrease Torchmark's sales of life insurance products, which could lead to lower premium growth and affect persistency on the in-force book. These trends will lead to slower EPS growth than estimates by consensus, he wrote.
The analyst downgraded his EPS estimates on Torchmark to $6.07 from $6.10 for 2018, to $6.47 from $6.54 for 2019 and to $6.93 from $7.02 for 2020.