Merrill Lynch Calls for Big Upside in Life Insurance Sector Leaders
January 22, 2019 by Jon C. Ogg
It has been a while since there has been much great to say about the banking and financial sector leaders. That said, the woes of the big banks might not pertain to some of the key non-bank financials. According to BofA Merrill Lynch, life insurance stocks are now undervalued entering 2019 and are already discounting a notable deterioration in credit conditions, falling stocks prices and interest rates. And for contrarians, the analyst team believes that overall investor sentiment is negative for the group even though earnings per share estimates have not come down materially.
Merrill Lynch does admit that risk remains in its forecasts, but valuations look quite reasonable even if earnings per share (EPS) estimates came down by 20%. The firm also noted that the market has overly punished several companies which are well capitalized, have effective risk management, and are deploying capital through buybacks and accretive acquisitions. Another boost here is that the firm sees credit concerns being overdone even if larger credit losses would limit the growth in book value.
The team at Merrill Lynch made several industry sector changes to targets and ratings on Wednesday, but the two notable calls were in shares of Lincoln National Corporation (NYSE: LNC) and MetLife, Inc. (NYSE: MET).
The call in Lincoln National stands out because Merrill Lynch named the carrier as its top pick for the year. The firm has a Buy rating and a $74 price objective, but that is $1 lower than the pre-call price objective. Its shares have been down more than 30% over the last year despite earnings that were close to initial expectations. That is worse than the drop in the S&P 500 at -6% and worse than 21% drop in the S&P Life and Health Insurance Index. The Merrill Lynch report said:
Click HERE to read the full story via 24/7 Wall St.
