Barclays sets Brighthouse Financial at Equalweight, $48 target

On Wednesday, Barclays began coverage of Brighthouse Financial , Inc. (NASDAQ:BHF) with an Equalweight rating and set a price target of $48.00. The firm highlighted significant uncertainty regarding the insurer's cash flows despite favorable market conditions and a shift towards less capital-intensive products.

Barclays noted that Brighthouse Financial's yearly cash flow projections have not met expectations for the past five years. This underperformance occurred even with advantageous market circumstances, including high markets and beneficial interest rates, as well as the company's strategic move to Shield products, which require less capital.

The coverage initiation reflects a cautious stance due to the insurer's history of overestimating its cash flows. Barclays indicated that while the current environment would suggest an inflection point for Brighthouse, the consistent shortfall in meeting cash flow guides has been a point of criticism.

However, Barclays also acknowledged the potential for a reinsurance transaction, which could improve Brighthouse's capital position. Such a deal could advance future cash flow and address some of the persistent issues faced by the company.

The analyst from Barclays concluded by stating the possibility of a reinsurance deal as a mitigating factor for the uncertainty surrounding Brighthouse Financial's cash flows. This move could potentially pull some of the insurer's expected future cash flow forward and alleviate some of the critique it has received.

In other recent news, Brighthouse Financial, Inc. has been downgraded from Equal Weight to Underweight by Wells Fargo due to heightened sensitivity to economic factors. The firm's Risk-Based Capital (RBC) ratio, a key measure of solvency, has fallen below its usual target, sparking concerns about the company's financial resilience.

Despite these challenges, Brighthouse Financial has reported robust adjusted earnings of $346 million or $5.57 per share in its second quarter 2024 earnings call, bolstered by record sales of Shield annuities.

Brighthouse Financial is actively undertaking several initiatives to improve its capital efficiency and restore the RBC ratio to its target range within the next 6 to 12 months. These strategies include reinsurance transactions aimed at unlocking capital. The company is also addressing the complexity of their hedging program for Shield and VA products to reduce volatility.

In addition, Brighthouse Financial expects increased BlackRock (NYSE:BLK) flows in the fourth quarter and is open to considering opportunities for external partnerships related to LifePath Paycheck. As part of these recent developments, the company plans to maintain a strong balance sheet and continue its share repurchase program. These initiatives demonstrate Brighthouse Financial's proactive approach in managing its financial position amidst macroeconomic pressures.

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