Investing.com -- Shares of Aegon (AS:AEGN) rose over 2% on Friday following an upgrade from BofA Securities, revising its rating on the company to "buy" and increased its price target to €7.
Analysts at BofA flag Aegon's efforts in de-risking its business and stabilizing its earnings. The company’s pledge to return excess cash over time was noted as a pivotal factor, presenting an opportunity for re-rating.
The analysts also emphasized Aegon's unique advantage as a beneficiary of macroeconomic conditions in the U.S., particularly given its earnings’ heavy reliance on the U.S. dollar and its operations' sensitivity to equity markets.
Aegon is expected to benefit from the current economic environment, characterized by sustained higher interest rates in the U.S., which support sales, reinvestment rates, and capital.
BofA analysts project a 4-6% increase in operating capital generation and a reduced cost of equity to 13%, contributing to the revised price target. These developments imply a potential total return of 25% from the current share price.
Additionally, Aegon’s capital return strategy includes initiating a €150 million share buyback program and reducing its holding cash pile from €1.7 billion to €1 billion over time.
BofA anticipates additional buybacks totaling €600 million in 2025 and €500 million in 2026, cumulatively amounting to 37% of the company’s market capitalization within three years.
Despite the positive outlook, BofA analysts acknowledged ongoing challenges for Aegon, particularly in demonstrating growth and operational improvements.
Success in enhancing asset management profitability and solidifying Transamerica’s market position in life insurance and retirement services could further strengthen investor sentiment and reduce the company's cost of equity.