On Tuesday, Evercore ISI adjusted its price target for Voya Financial (NYSE:VOYA), reducing it to $89 from the previous $94, while maintaining an Outperform rating on the company's stock. The $7.67 billion financial services provider, currently trading at a P/E ratio of 12.38, appears undervalued according to InvestingPro analysis, despite recent challenges.
The revision follows Voya Financial's announcement after market close, revealing a significant expected fourth-quarter loss within its medical stop loss business due to higher claims frequency. This loss is anticipated to hinder the company's ability to achieve its target margin range by 2025, potentially delaying it until 2027.
Voya Financial has also revised its expectations for the 2024 accident year, forecasting a midpoint loss ratio of around 98%, significantly higher than the prior estimate of 86% and above the targeted pricing range of 77-80%. Additionally, the company is preparing for approximately 22% rate increases for January 2025 renewals but predicts a 10-20% contraction in top-line revenue. These developments come in the context of an underlying medical loss cost trend of about 8-9% on first dollar coverage.
The firm anticipates that the loss ratio for 2025 will be roughly 6 points better than 2024's 98%, due to the rate increases, resulting in an estimated 92% loss ratio for 2025. If the trends continue, this could improve to 86% in 2026, and then align closer to the target ranges by 2027.
Despite these challenges, Voya has demonstrated strong revenue growth of 10.94% over the last twelve months, and management has been actively buying back shares, as noted by InvestingPro analysts. Despite the broad guidance range provided by Voya, Evercore ISI believes a midpoint approach is suitable as the company has not previously incorporated conservatism into its stop loss updates.
In light of these updates, Evercore ISI has also altered its fourth-quarter 2024 earnings estimate for Voya Financial, reducing it by $1.39 to 72 cents, and lowering the 2025 earnings estimate from $9.25 to $8.33. The price target has been adjusted by approximately half of the estimated 10% earnings reduction. The firm acknowledges that the recent developments are a setback for Voya Financial but does not fully adjust the price target downward, considering the potential earnings boost from multi-year repricing in 2026 and 2027.
Additionally, Voya Financial announced the upcoming departure of Rob Grupka, the head of the health and wealth business, at the end of 2024. Evercore ISI is awaiting further details on the succession plan for his replacement. With the next earnings report scheduled for February 11, 2025, investors seeking deeper insights into Voya's financial health and growth prospects can access comprehensive analysis through InvestingPro, which offers detailed reports on over 1,400 US stocks, including Voya Financial.
In other recent news, Voya Financial and HDFC Bank have reported significant developments. Voya Financial exhibited robust growth in its third-quarter earnings for 2024, with adjusted operating earnings per share (EPS) increasing by 9% year-over-year to $1.90. Key growth areas included Wealth Solutions and Investment Management, which saw nearly 20% and over 10% increases respectively.
Despite challenges in the Health Solutions sector, Voya acquired OneAmerica's retirement business, a move expected to boost pretax operating earnings by at least $75 million in its first year. The firm also announced plans to return $800 million in excess capital to shareholders in 2024. RBC (TSX:RY) Capital and Piper Sandler adjusted their outlook on Voya Financial, with RBC Capital increasing the price target to $95 while Piper Sandler increased it to $91.
On the other hand, HDFC Bank appointed an additional independent director to its board, a move that aligns with the corporate governance standards expected of companies listed on international stock exchanges. This decision is part of HDFC Bank's commitment to maintaining a robust governance structure and ensuring diverse and independent board representation. The new independent director is expected to bring additional expertise and an external perspective to the bank's strategic decision-making process. These recent developments reflect HDFC Bank's ongoing efforts to enhance its corporate governance framework.
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