The company suffered an operating loss of 113 million

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S&P has a BBB+ rating, with a negative outlook. The company suffered an operating loss of $113 million during the quarter and did not cover interest expense, while the average operating income for peers covered interest expense by a factor of 6.7. The company’s adjusted net profit margin in 1Q18 was 12.0%, above the peer average of 11.4%. Brighthouse has not made any cash dividend payments since becoming a publicly traded company in August 2017, and does not intend to make any over at least the next couple of years. Our forecasts call for no dividends in either 2018 or 2019. As discussed above, management said that it may repurchase shares if its CTE95 level exceeds $3.0 billion. We do not expect buybacks to begin until 2019 at the earliest, and probably not until 2020.
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M ARKET D IGEST - 4 - MANAGEMENT & RISKS Eric Steigerwalt has served as the company’s president and CEO since the spinoff in August 2017. Prior to that, he held a range of executive positions at MetLife, which he joined in 1998. Anant Bhalla is the CFO of Brighthouse. He had been the CFO of MetLife’s Retail division since joining the company in 2014. Prior to MetLife, he held executive positions at AIG. BHF investors face risks related to new business strategies and the possibility that they may not achieve the company’s objectives. They also face the risk that a sustained period of low equity market prices, and lower interest rates than those assumed when BHF issued its variable annuity products, could materially impact its operations, capitalization, and financial position. In addition, a downgrade or potential downgrade of BHF’s credit ratings could hurt its operational results and financial condition, as could changes in tax laws that might make certain products less attractive to consumers. COMPANY DESCRIPTION Brighthouse Financial provides life insurance and annuity products in the U.S. The company was spun off from MetLife in August 2017. BHF’s in-force book of products consisted of approximately 2.7 million insurance policies and annuity contracts as of December 31, 2017. Although Brighthouse had $629 billion of in-force life insurance policies at the end of 2017, its life insurance operations account for a very small portion of earnings, as the company has reduced these activities in recent years. INDUSTRY We have lowered our rating on the Financial Services sector to Market-Weight from Over-Weight. Investors are moving to the sidelines amid the change in leadership at the Fed. In addition, despite improving net interest margins, earnings at money- center banks continue to face pressure from anemic trading activity, which has led to an increase in sector P/E and PEG ratios. The sector accounts for 14.9% of the S&P 500, down from 16.3% following the exclusion of REIT stocks. Over the past five years, the weighting has ranged from 10% to 17%. We think the sector should account for 14%-16% of diversified portfolios. The Financial sector outperformed in 2016, with a gain of 20.1%. It performed largely in line with the market in 2017, with a gain of 20.0%. It is slightly outperforming in early 2018, with a loss of 0.9%.
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