Summary
- Annuity sales smashed previous records in 2022, and growth is likely seen this year.
- Jackson Financial is a major player in the space.
- After reporting a revenue miss, shares have moved lower but I see value here.
- I outline key price levels to watch on this top-quant-ranked name.
Annuity sales are sharply on the rise. Data from LIMRA show that 2022 sales of this type of insurance used in retirement planning surged to a whopping $310.6 billion, a 22% jump from 2021 figures and 17% above the previous high-water mark notched in 2008. And, per an Athene executive, annuity sales “have never been more attractive .”
Big Annuity Sales
LIMRA
As more folks retire and grow increasingly uncertain about the stock and bond market’s volatility, annuities are often seen as safer vehicles to ensure an income stream guaranteed by an issuing company.
Jackson Financial (JXN) is a stalwart in the industry with a track record in the decades. What’s more, RIAs are gravitating to Jackson’s products as more tech-focused firms emerge to offer advisors access to low-cost and transparent annuities. To wit, Halo Investing partnered with Jackson last year. Brighthouse Financial also reported record annuity revenue for last year.
For background according to CFRA Research, Jackson Financial Inc. through its subsidiaries, primarily provides a suite of annuities to retail investors in the United States. The company operates through three segments: Retail Annuities, Institutional Products, and Closed Life and Annuity Blocks. The Retail Annuities segment offers various retirement income and savings products, including variable, fixed index, fixed, and immediate payout annuities, as well as registered index-linked annuities and lifetime income solutions.
The Michigan-based $3.5 billion market cap Diversified Financial Services industry company within the Financials sector trades at a low 0.7 trailing 12-month GAAP price-to-earnings ratio and pays a high 5.2% dividend yield, according to The Wall Street Journal. JXN topped analysts’ earnings estimates in its Q4 report earlier this week but reported a massive revenue miss – but historically total revenues have been volatile due to the firm’s hedging activities.
In general, the firm benefits from higher interest rates as it can earn more on investments versus its financial obligations to annuity contract owners. So, with yields now topping 4% on the 10yr Treasury and Long Bond, fundamentals could be improving so long as the firm is not over-hedging.
You’ll also notice that JXN is the top-ranked Financials sector stock, but that’s likely the result of such a pronounced positive trend in rates that won’t sustain. I see fair value of the stock perhaps around 1x book which would put the stock significantly higher from here, above $60, but a dip in rates could put that at risk, so a margin of safety should be used. What’s ideal for stockholders, though, is that the firm raised its share repurchase program and increased its dividend during its quarterly release.
Looking ahead, corporate event data from Wall Street Horizon show an unconfirmed Q1 2023 earnings date of Tuesday, May 9 AMC with a dividend ex-date of Monday, March 13 (CAD 0.62).
Corporate Event Risk Calendar
The Options Angle
While early yet, the options market has priced in a significant 7.8% earnings-related stock price move around its May report, according to data from Option Research & Technology Services (ORATS) with a consensus EPS forecast of $4.20, down from $3.94 of per-share profits earned in the same period a year ago. So, the earnings picture could be less sanguine looking ahead too (another reason to consider that shares are not as cheap as they appear on traditional valuation metrics).
JXN: Cheap Options Looking Out to May
The Technical Take
JXN exhibits a bearish false breakout here, but I see support in the mid to high $30s. So, buying on another 10% dip makes sense here with a stop under $32. The target on the trade would be in the upper $40s, but with a fair value in my eyes in the mid to high $50s, value investors might want to consider holding it for longer. Often after a major earnings move down, giving the stock a few days to settle is wise, so a limit buy order is the prudent play.
JXN: Support in the High $30s, Above the 200dma
The Bottom Line
I like Jackson on valuation and amid long-term annuity sales trends. I see shares as significantly undervalued, but not to the extent that the P/E suggests. Technicals show more downside ahead, but buying on the dip to the upper $30s looks good to me from a risk/reward point of view.
For further details see:
Jackson Financial: Shares Cheap, But Technical Downside Ahead, Buy The Dip