Raymond James lifts Brighthouse Financial to Strong Buy

On Tuesday, Raymond (NSE:RYMD) James upgraded Brighthouse Financial , Inc. (NASDAQ:BHF) stock rating from Market Perform to Strong Buy, setting a price target of $72.00. The upgrade follows speculation that the company may be exploring a sale, which could unlock significant value for shareholders. In January, it was reported that Brighthouse Financial is seeking buyers. According to InvestingPro data, the stock, currently trading at $56.95, appears undervalued based on its Fair Value analysis, with the company showing strong momentum through a 31.8% price return over the past six months.

The firm believes that Brighthouse Financial could substantially benefit from either a whole company sale or a strategic breakup. Analysts at Raymond James have based their valuation on the potential for an acquirer to yield additional returns from the company’s approximately $120 billion investment portfolio. They also note the attractiveness of Brighthouse Financial’s distribution capabilities.

Analysts estimate a baseline valuation of $77 per share for a whole company sale. They suggest that Brighthouse Financial could achieve an even higher valuation by selling different parts of its business to the highest bidders. A standalone valuation has been estimated at $66, which is calculated using a 10x cash flow multiple, consistent with industry peers like LNC, EQH, and CRBG, on a projected $375 million in annual capital generation.

In the event that Brighthouse Financial does not engage in a sale, Raymond James expects the company to seek innovative ways to raise capital and strengthen its hedging strategies to improve cash flow. The demand for Brighthouse Financial’s liabilities is reportedly high, driven by a number of factors including an increase in sophisticated competitors, demand for longer-dated liabilities, and potential regulatory changes that could incentivize transactions in the near term.

Raymond James has also updated its earnings per share (EPS) estimates for Brighthouse Financial for the years 2025, 2026, and $27.25, respectively. These updated figures reflect the results from the fourth quarter of 2024 and minor adjustments to their model, and they compare favorably to the consensus estimates of $20.10, $22.33, and $25.70 for the same periods. InvestingPro data supports this optimistic outlook, noting that three analysts have recently revised their earnings upward for the upcoming period, with the company expected to achieve an EPS of $19.68 in 2025. The stock currently trades at an attractive P/E ratio of 12.12, suggesting potential upside opportunity.

In other recent news, Brighthouse Financial reported fourth-quarter earnings that exceeded analyst expectations. The company posted adjusted earnings of $5.88 per share, surpassing the consensus estimate of $4.50 and marking a significant increase from $2.92 per share in the same quarter last year. Revenue for the quarter was reported at $1.2 billion, though this figure may not align directly with analyst estimates of $2.2 billion. Net income available to shareholders was $646 million, or $10.79 per diluted share, a notable turnaround from a net loss of $942 million, or $14.70 per diluted share, in the previous year. Annuity sales saw an 18% decline year-over-year, attributed mainly to reduced sales of fixed deferred annuities, though this was partially counterbalanced by record sales of Shield Level Annuities. Brighthouse Financial completed a reinsurance transaction for a legacy block of universal life and variable universal life products, as part of its capital-focused strategic initiatives. The company repurchased $60 million of its common stock during the fourth quarter, totaling $250 million for the year, reducing shares outstanding by approximately 8% compared to year-end 2023. Brighthouse Financial concluded the quarter with an estimated combined risk-based capital ratio of around 400% and holding company liquid assets of $1.1 billion.

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