2023-08-11 08:30:00 ET
Summary
- Jackson Financial Inc. investors who braved significant pessimism in May have been rewarded as JXN outperformed the S&P 500 since my previous update.
- I stressed that JXN was near peak pessimism as buyers returned quietly. Jackson's recent Q2 earnings release and outlook support my conviction that the worst is likely over.
- Analysts expect Jackson's earnings to improve in the second half of 2023 and stage a robust recovery in 2024. As such, even the Neutral-bias analysts don't expect things to worsen.
- I make the case why JXN holders should capitalize on its high dividend yield (7.8% forward yield) and its ongoing recovery before it potentially surges high.
- Read on and comment whether you agree with my Buy rating on this well-battered annuities stock.
Jackson Financial Inc. (JXN) buyers have attempted to stage a remarkable comeback since JXN bottomed out in May 2023. I pre-empted holders in an early July 2023 article, stressing that JXN was likely " near peak pessimism ."
As such, the consolidation zone, since forming its May lows, was assessed to be a quiet accumulation zone for buyers to add shares before they potentially run up. Moreover, the macroeconomic outlook and the Fed's positioning were constructive, leading up to JXN's recent second-quarter or FQ2 earnings release .
As such, I'm not surprised with JXN's recent upward reversal, as it outperformed the S&P 500 ( SPX ) ( SPY ) since my July update, as buyers returned robustly. I updated that the valuation in JXN was constructive, as investors bailed out of the leading annuities player, unduly concerned about the impact of exposure of its investment securities portfolio.
Notwithstanding the fallout in the first half of 2023, management kept calm as it continued executing well. Jackson's Q2 execution and constructive outlook have calmed investors' fears further, justifying dip buyers' confidence in picking those lows between May and July 2023.
Accordingly, Jackson posted adjusted operating earnings of $283M or $3.34 per share. While it's down 27% YoY, it indicated an improvement from Q1's adjusted operating EPS of $3.15. Hence, buyers likely assessed that the worst in Jackson's earnings performance probably bottomed out in the first half, as they anticipate a more constructive outlook for H2'23.
The updated analysts' estimates (Neutral bias) concur, with Jackson's adjusted operating EPS projections expected to trend upward through the end of FY23. While Jackson is expected to post a full-year adjusted EPS decline of 12% YoY, it's expected to stage a robust recovery of 13% YoY in FY24. As such, I gleaned that buyers' sentiments/psychology seen in JXN's price action bolsters my confidence that they are convinced that Jackson could have seen the worst in its operating performance in H1'23.
Notably, the company remains on track to post its midpoint $475M capital return target for FY23, having delivered $224M in the first half to shareholders (through stock repurchase and dividends). I don't see imminent risks to the company's dividend payout profile, despite its high dividend yield of 7.8% at writing.
I believe investors have de-rated JXN's valuation given uncertain near-term risks that have caused significant volatility in its GAAP earnings. However, the company's core retail annuities business remains robust. Jackson has also benefited from the recovering equity markets, helping to improve its net hedging results. With my view that we are still in the earlier stages of the market's recovery leading to new highs, JXN's significant relative underperformance due to the previous unfounded fears should normalize over time.
With that in mind, investors need to assess whether JXN's buying upside has been reflected? Or are there still opportunities for investors who missed its mid-year lows to add more shares? Let's see.
To be clear, JXN's price action doesn't suggest that it's about to start a new long-term uptrend, as it seems like a considerable consolidation zone. However, that doesn't mean we couldn't find opportunities to capitalize.
Dip buyers who bought into JXN's mid-year lows likely saw attractive mean-reversion setups as it got pummeled into highly pessimistic zones. Notwithstanding the recent recovery and market outperformance, I see a possible resistance zone at the current level.
However, although I anticipate near-term volatility as some dip buyers take profit, I gleaned that it's still too early for me to turn Neutral, as JXN's mean-reversion looks increasingly likely to re-test higher levels.
With increasingly constructive macro conditions and improving earnings performance, JXN seems priced for further upside, supported by Seeking Alpha Quant's "A+" valuation grade.
Rating: Maintain Buy. Please note that a Buy rating is equivalent to a Bullish or Market Outperform rating.
Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking and note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.
We Want To Hear From You
Have constructive commentary to improve our thesis? Spotted a critical gap in our view? Saw something important that we didn't? Agree or disagree? Comment below with the aim of helping everyone in the community to learn better!
For further details see:
Jackson Financial: Finally Rising From The Ashes