Shares of Voya Financial, Inc. (VOYA Quick QuoteVOYA - Free Report) have gained 18.5% in the past three months compared with the industry’s growth of 16.5% and the Zacks S&P 500 composite’s return of 6.4%. Currently priced at $79.93, the stock is a little below its 52-week high of $84.30. This proximity underscores investor confidence. It has the ingredients for further price appreciation. 

VOYA Outperforms Industry & S&P in Three Months

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The stock is trading above the 50-day and 200-day simple moving average (SMA) of $79.72 and $72.91, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Earnings of Voya Financial grew 16.2% in the last five years, better than the industry average of 4.6%. VOYA has a solid surprise history. The life insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 6.77%.

VOYA’s Encouraging Growth Projection

The Zacks Consensus Estimate for Voya Financial’s 2024 revenues is pegged at $1.20 billion, implying a year-over-year improvement of 6.8%. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 24.2% and 13.1%, respectively, from the corresponding 2024 estimates.

VOYA’s Favorable Return on Capital

Return on equity in the trailing 12 months was 15%, better than the industry average of 15.4%. This highlights the company’s efficiency in utilizing shareholders’ funds. 

Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame, reflecting Voya Financial’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 0.9%, better than the industry average of 0.6%.

Factors Acting in Favor of VOYA

VOYA’s earnings are driven by its solid segmental performances across Wealth Solutions, Investment Management and Health Solutions. These businesses are higher-growth, capital-light and higher-return units, boasting the company’s solid presence in the market.

The Wealth Solutions segment is steadily witnessing significant growth on the back of continued strength in underlying business results, higher surplus income, lower credited interest, improved investment income, weaker fee-based margin, a favorable change in deferred acquisition costs and value of business acquired and lower administrative expenses. In Wealth Solutions, full-service recurring deposits should continue to gain from growth in the corporate markets. 

The Investment Management segment should benefit from higher investment capital returns due to its overall market performance and improved fee revenues, driven by higher average equity markets and positive net flows.
VOYA is constantly taking strategic steps to ramp up growth in its Investment Management segment. Voya Financial and Allianz Global Investors inked a long-term strategic partnership that added scale and diversification to Voya Investment Management. Voya Investment Management’s adjusted operating margin is expected to increase 30-32% for 2024.

The Health Solutions segment of the insurer is likely to benefit from growth across all product lines, favorable retention and the positive impacts of the Benefitfocus acquisition.

The company’s capital levels remain strong. As of Sept. 30, 2024, the estimated combined RBC ratio, with adjustments for certain intercompany transactions, was 395%. Voya Financial exited the third quarter with cash and cash equivalents of $1.4 billion, which surged 75.7% year over year. This financial flexibility provides strength to the company. VOYA continues to demonstrate strong excess capital generation and high free cash flow conversion in line with the targets for 2024.

VOYA’s Wealth Distribution

Operational excellence has been helping the company deploy capital to enhance shareholders’ value. As of Sept. 30, 2024, the remaining repurchase capacity under the board's authorization was $382 million. Beginning in the third quarter of 2024, Voya Financial increased the quarterly dividend by 12.5%. Beginning in the third quarter of 2024, VOYA increased the quarterly dividend by 12.5%. Voya remains on track to return $800 million in excess capital to shareholders in 2024 and is well-positioned to significantly improve excess capital generation in 2025.

Risks for VOYA

However, the life insurer has been experiencing an increase in expenses due to higher policyholder benefits, interest credited to contract owner account balances, operating costs and interest expenses. If the company doesn't strive to generate revenue growth more than the magnitude increase in expenses, the margin will continue to erode.

VOYA Shares are Affordable

The stock is undervalued compared with its industry. It is currently trading at a price-to-book multiple of 1.23, lower than the industry average of 2.04. The insurer has an impressive Value Score of B. 

Shares of other life insurers like Brighthouse Financial, Inc. (BHF Quick QuoteBHF - Free Report) , Reinsurance Group of America, Incorporated (RGA Quick QuoteRGA - Free Report) and Manulife Financial Corp (MFC Quick QuoteMFC - Free Report) are also trading at a discount to the industry average.

Conclusion

Favorable retention, positive impacts of the Benefitfocus buyout, higher investment income, solid underlying business results and effective capital deployment should continue to favor VOYA over the long term. 

Voya Financial should continue to benefit from favorable growth estimates, higher return on capital as well as affordability of shares. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.