On may 7 bhf reported 1q18 adjusted earnings of 236

Info icon This preview shows pages 2–3. Sign up to view the full content.

View Full Document Right Arrow Icon
* On May 7, BHF reported 1Q18 adjusted earnings of $2.36 per share, well above our estimate of $2.17 and the consensus forecast of $2.04, reflecting the impact of lower costs and higher sales. Management also projected 2018 adjusted EPS of $8.50-$9.00 and mid- to high single-digit annual EPS growth going forward. * We are lowering our 2018 adjusted EPS forecast to $8.95 from $9.01 based on management’s lower-than- expected EPS guidance. We are also lowering our 2019 forecast to $9.39 from $9.57. Our five-year earnings growth rate forecast is 4%. * Given the company’s weak near-term outlook, BHF stock appears fairly valued at 5.2-times our 2019 EPS estimate, below the peer average of 9.0, and at a price/book multiple of 0.5, below the peer average of 1.1. ANALYSIS INVESTMENT THESIS We are maintaining our HOLD rating on Brighthouse Financial Inc. (NGF: BHF), a provider of life insurance and annuity products. The company was spun off from MetLife in August 2017. Although Brighthouse has the opportunity to reshape its operations over the next several years, we believe that it has limited near-term growth prospects given declining demand for annuity plans in the U.S. and the recent reduction in its roster of policies. In particular, the company has discontinued new sales of whole life and certain term-life policies. We also expect margins to face pressure due to post-spinoff expenses, including the costs of transition service agreements with MetLife, and interest costs on $3 billion of recently issued debt. The company does not pay a dividend and does not expect to in the near term. Further, the company does not have a share repurchase program, though management has indicated that it may begin one if its assets rise above a certain level. On valuation, BHF shares are trading at 5.2-times our 2019 EPS estimate, below the peer average of 9.0, and at a price/ book multiple of 0.5, below the peer average of 1.1. We believe that these discounts are appropriate given the company’s relatively weak near-term outlook. We would consider an upgrade on signs of a sustainable upturn in revenue and earnings, or the initiation of a dividend or share repurchase program. RECENT DEVELOPMENTS BHF shares have underperformed over the last three months, declining 12%, compared to a gain of 3% for the S&P MidCap 400 index. The shares have also underperformed since the August 2017 spinoff, falling 21%, compared to a 10% rise in the S&P MidCap 400 index. The beta on BHF shares is 1.12, in line with peers. On May 7, BHF reported 1Q18 adjusted earnings of $2.36 per share, well above our estimate of $2.17 and the consensus forecast of $2.04, reflecting the impact of lower costs and higher sales. First-quarter adjusted earnings rose to $283 million from $280 million in 1Q17. Revenue before investment and derivative gains and losses rose 8% to $2.2 billion, reflecting higher premiums and fees. Including adjustments, total revenue rose to $1.8 billion from $965 million in 1Q17, mostly due to derivative losses in the prior-year period. Adjusted revenue missed our estimate of $2.2 billion and the consensus forecast of $2.1 billion.
Image of page 2

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern