Insurance Stocks

Brighthouse Financial Inc Valuation – Initial Coverage $BHF

Company Profile (excerpt from Reuters): Brighthouse Financial, Inc., incorporated on August 01, 2016, is a provider of life insurance and annuity products in the United States. The Company offers a range of products and services, which include variable, fixed, index-linked and income annuities, as well as variable, universal, term and whole life products. These products and services are marketed through various third party retail distribution channels in the United States. The Company’s products include variable annuities, fixed annuities, index-linked annuities and whole life; income annuities, and variable, universal and term life. Fixed income annuities provide a guaranteed monthly income for a specified period of years and/or for the life of the annuitant. The Company operating segments include Annuities, Life and Run-off.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BHF – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,979,073,831 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -681000100.00% Fail
5. Moderate PEmg Ratio PEmg < 20 -15.05 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.41 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Fail
3. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$3.32
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth -$48.09
MG Value based on 0% Growth -$28.19
Market Implied Growth Rate -11.78%
Current Price $49.92
% of Intrinsic Value N/A

Brighthouse Financial Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0 in 2014 to an estimated $-3.32 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Brighthouse Financial Inc revealed the company was trading below its Graham Number of $141.57. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -15.05, which was below the industry average of 22.6, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Brighthouse Financial Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $141.57
PEmg -15.05
PB Ratio 0.41
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $3,612,000,000
Total Assets $224,192,000,000
Intangible Assets $0
Total Liabilities $209,677,000,000
Shares Outstanding (Diluted Average) 119,773,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.35
Dec2017 -$3.16
Dec2016 -$24.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$3.32
Dec2017 -$7.62
Dec2016 -$8.21

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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