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PRI or BHF: Which Stock is Better Placed at the Moment?

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The life insurance industry holds ample scope for growth in light of the COVID-19 outbreak, which has persuaded the companies to re-evaluate and redesign their products and policies. The industry participants have been introducing policies, which are not only backed with a death benefit option but also incorporate riders and long-term care benefits within them. Portfolios of life insurance companies are undergoing a significant change with an intensified focus to include hybrids and unit-linked products, which are capital efficient and have the capacity to perform well amid persistently lower interest rate environment.

The life insurance policies combined with protection and guaranteed lifetime income feature seem to be the need of the hour. While higher mortality rates stemming from the pandemic served as a wake-up call regarding the importance of life insurance policies, financial insecurities wreaked by the same made people aware about the need to secure the financial future.

However, a sustained period of lower interest rate does not bode well for life insurers with their rate-sensitive products and investments. Interest rates dropped to near-zero level last year with no signs of recovery until 2023. With sluggish interest rates, the investment yields of the life insurance companies are likely to stay under pressure. An escalation in COVID-19 cases also poses a significant threat to the life insurers. Notably, higher mortality rates led to increased claim payments by life insurers, which have dampened their underwriting results.

Nevertheless, social-distancing measures led to preference of online transactions. The companies started digitizing the process of purchasing life insurance policies. Technological upgradations in the form of artificial intelligence, robotic process automation, cognitive intelligence or blockchain came to the forefront. These technology advancements came at an oppurtune time as it helped cater to the accelerated claim payments and bring about automation in processes. This, in turn, is likely to boost the premium growth, which usually contributes substantial portion to revenues of any insurance firm. Further, increase in people attaining retirement age is indicative of an aging U.S. population, which when coupled with higher life expectancy trends, is likely to push up the demand for life insurance policies in the days ahead.

Deloitte’s Center for Financial Services conducted an outlook survey for the global insurance industry last year, per which worldwide life insurance premiums are not only anticipated to recover and witness growth of 3% during 2021 but the same are also expected to reach the pre-pandemic levels in this year itself.

The prevailing scenario makes us optimistic regarding consistent growth in this industry, which should boost prospects of companies with sound business fundamentals. The Zacks Life Insurance industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #106, which places it in the top 42% of more than 250 Zacks industries.

The Zacks Life Insurance industry has gained 2.6% in the past year, underperforming the S&P Index’s growth of 28.1%.

Against this backdrop, let’s take a look at the two life insurers Primerica, Inc. (PRI - Free Report) and Brighthouse Financial, Inc. (BHF - Free Report) with market capitalizations of $5.7 billion and $3.7 billion, respectively. Notably, both stocks carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let's delve deeper into specific parameters pertaining to which we can find out which company is better positioned at the moment.

Price Performance

Shares of Primerica and Brighthouse Financal have gained 21.5% and 3.6% in the past year, respectively. Evidently, Primerica has an edge over Brighthouse Financial here.

Earnings Surprise History

A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.

Primerica’s bottom line beat estimates in three of the trailing four quarters and missed once. It has a trailing four-quarter earnings surprise 8.36%, on average. Meanwhile, earnings of Brighthouse Financial surpassed the mark in three of the trailing four quarters and missed once. It has a trailing four-quarter negative earnings surprise of 0.61%, on average. It is clear that Primerica has an edge over Brighthouse Financial here.

Return on Equity

Return on equity is a profitability measure, which indicates how efficiently the company is utilizing its shareholders fund.

Primerica’s ROE of 23.3% compares favorably with Brighthouse Financial’s ROE of 10.8%.

Valuation

Price-to-book (P/B) is one of the multiples used for valuing insurance stocks. Compared with the life insurance industry’s trailing 12-month P/B ratio of 1.47, Primerica and Brighthouse Financial has a reading of 3.1 and 0.2, respectively. It is evident that Brighthouse Financial is cheaper than Primerica.

Debt-to-Equity

Both companies have higher debt-to-equity ratio than the industry average of 13.4x. However, Brighthouse Financial’s leverage ratio of 21.7x betters Primerica’s ratio of 98.7x. Therefore, Brighthouse Financial holds an edge over Primerica on this front.

Expected Bottom Line Growth in 2021

For Primerica, the Zacks Consensus Estimate for 2021 earnings indicates an improvement of 13.6% from the 2020 reported figure. The same for Brighthouse Financial is suggests growth of 202.3% from the 2020 reported figure. As a result, Brighthouse Financial is better poised than Primerica in this case.

Strong Earnings Estimate Revision

An upward estimate revision is indicative of the brokers’ optimism surrounding the stock’s growth prospects. While the consensus estimate for 2021 has moved 0.9% north for Primerica, the same for Brighthouse Financial has moved 0.8% upward for current-year earnings. Evidently, Primerica has an edge over Brighthouse Financial here.

Dividend History

Primerica has been implementing dividend hikes regularly with dividend yield being 1.8%. However, Brighthouse Financial did not resort to any dividend payments. Here, Primerica is the clear winner here.

VGM Score

VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum. While Primerica has VGM Score of C, Brighthouse Financial has an impressive score of B. Thereby, Brighthouse Financial wins this round.

Conclusion

Our comparative analysis shows that Primerica is better-placed than Brighthouse Financial with respect to price performance, earnings surprise, estimate revision, dividend history and return on equity. Meanwhile, Brighthouse Financial scores higher in terms of expected 2021 bottom line growth, valuation, VGM Score and leverage ratio. As the scale is slightly tilted toward Primerica, the stock discernibly makes a more promising investment proposition.

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