UBS cuts RGA stock rating to Neutral, sets $216 target

On Wednesday, UBS analyst Michael Ward adjusted the rating for Reinsurance Group of America (NYSE:RGA), a prominent $13 billion market cap insurance player with a "GOOD" InvestingPro Financial Health score, moving from Buy to Neutral with a price target of $216. The change reflects concerns over the potential continuation of recent pressures on the company’s shares as management implements a new, more aggressive growth strategy.

Ward noted that Reinsurance Group of America’s increased capital deployment, which aims to achieve 8-10% annual earnings per share (EPS) growth over the intermediate term, is already factored into both UBS’s projections and the wider market consensus. This consensus anticipates an 8% annual EPS growth through 2027. The company has demonstrated strong financial discipline, maintaining dividend payments for 33 consecutive years, with 15 years of consecutive increases - one of several key metrics available on InvestingPro.

The analyst pointed out that RGA’s significant recurring capital deployment target is expected to rely on stable earnings and the formation of new sidecar partnerships, projected to bring in $0.2 to $0.5 billion annually. Additional debt has been deemed unlikely given recent comments from rating agencies following a $0.7 billion issuance, suggesting a preference for reduced leverage.

While acknowledging the company’s ability to meet its growth targets and management’s efforts to capitalize on global growth opportunities, Ward expressed caution. He indicated that the required capital deployment might limit near-term stock upside, and reliance on third-party capital could stretch the company’s traditionally conservative approach.

Furthermore, Ward highlighted the additional execution risks associated with RGA’s largest-ever deal, a recently announced life transaction with EQH, and the annual deployment targets. There is concern that the $1.5 billion could become a forced measure for growth rather than a result of favorable reinsurance market pricing or opportunistic actions.

In conclusion, despite Ward’s endorsement of RGA’s long-term prospects, the current risk/reward balance has led to a Neutral stance from UBS. According to InvestingPro’s Fair Value analysis, RGA is currently fairly valued, trading at a P/E ratio of 18x. For deeper insights into RGA’s valuation and growth prospects, including exclusive ProTips and comprehensive financial analysis, investors can access the detailed Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.

In other recent news, Reinsurance Group of America (RGA) reported several significant developments impacting its financial and strategic outlook. JPMorgan upgraded RGA’s stock rating to Overweight, with a new price target of $237, citing improved earnings per share projections and a more attractive valuation following a period of underperformance. Meanwhile, Moody’s affirmed RGA’s ratings but shifted its outlook to negative, reflecting concerns about financial flexibility and capital adequacy due to a sizable reinsurance agreement with Equitable Holdings (NYSE:EQH). This agreement involves RGA assuming $32 billion of life insurance reserves, a move consistent with its strategy of managing large transactions.

Additionally, TD Cowen maintained its Hold rating on RGA, with a price target of $228, viewing the Equitable deal as a positive development that could enhance earnings. However, they noted that RGA’s capital deployment for 2025 had already been accounted for in prior guidance. In corporate governance news, RGA announced that board member George Nichols III would not seek re-election, with no immediate successor named. Investors are closely monitoring these changes as they could influence RGA’s strategic direction and governance.

RGA’s anticipated issuance of subordinated notes, rated Baa2 (hyb) by Moody’s, will be used for general corporate purposes, including the Equitable transaction. Despite the negative outlook, RGA’s strong market position and geographic diversification remain key strengths. These recent developments highlight the company’s ongoing efforts to navigate financial challenges while pursuing strategic growth opportunities.

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