Primerica Inc. PRI will benefit from its compelling portfolio, strong market presence and solid capitalization. These factors, along with growth projections and positive analyst sentiment, make this Zacks Rank #2 (Buy) life insurer a worthwhile addition to your portfolio.

PRI’s earnings have increased 17.6% over the past five years, outperforming the industry average of 5.9%.

This second-largest provider of term life insurance in North America aims to be a successful senior healthcare company while continuing to increase value for its shareholders.

An outperformer

Shares have gained 26.4% year-to-date, outperforming the industry’s 12.4% gain, the financials sector’s 11.9% gain and the Zacks S&P 500 Composite’s 16.9% gain during the period.

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Revision of the cost estimate for the northbound direction

Zacks’ consensus estimate for earnings in 2024 and 2025 has increased 1.1% and 1.4%, respectively, over the past 30 days, reflecting analyst optimism.

Optimistic growth forecasts

The Zacks Consensus Estimate for Primerica’s earnings in 2024 is $17.92 per share, representing an increase of 11.5% on 5.5% higher revenues of $3 billion. The Zacks Consensus Estimate for Primerica’s earnings in 2025 is $19.96 per share, representing an increase of 11.4% on 3.5% higher revenues of $3.1 billion.

Return on investment

Return on equity (ROE), a profitability measure that indicates how efficiently a company uses its shareholders’ funds, has been improving in recent years. PRI’s trailing-12-month return on equity of 27.8% is better than the industry average of 15.5%.

In addition, the return on capital employed for the last 12 months was 7.2%, which is better than the industry average of 0.7%, reflecting PRI’s efficiency in using funds to generate income.

Growth drivers

Primerica found that nearly 48% of middle-income Americans are ready for retirement based on their investment and savings habits. Strong demand for protection products drives sales growth and contract persistence, so life insurance licensed salespeople should play a critical role in capitalizing on growth opportunities. Management expects the sales team size to grow by more than 5% in 2024.

Thanks to its strong business model, the company is ideally positioned to meet the increased demand for financial security among small and medium-sized businesses. In addition, a strong license base and growing sales capacities should continue to lead to higher operating results. The life insurer expects the number of term life insurance policies to grow in the low single-digit range and sales of investment and savings products to increase by around 15%.

The life insurer has also decided to exit the senior healthcare products market as it believes this business cannot deliver the desired value for shareholders amid a difficult senior healthcare product distribution market. This will help PRI direct resources to businesses that accelerate growth.

Life insurers benefit directly from an improved interest rate environment. An improved interest rate environment should increase net investment income. However, expectations of a rate cut at the FOMC meeting in September and further cuts this year make us cautious.

Primerica has a solid balance sheet thanks to an improved debt ratio and solid liquidity. The company also scores well with the rating agencies.

The strength of the term life insurance business ensures consistent free cash flow. In particular, free cash flow conversion has been above 100% in recent quarters, reflecting solid earnings.

The story continues

Distribution of wealth

To increase value for shareholders, the life insurance company increases dividends and buys back shares every year. Dividend increases have averaged 16.8% over the past ten years. In addition, shares valued at $173.2 million are still authorized.

Other stocks to consider

Some other highly valued stocks in the insurance industry are Reinsurance Group of America RGA-G, Brighthouse Finance BHF and F&G Annuities & Life, Inc. FG, all with Zacks Rank #2. The complete list of today’s Zacks Rank #1 (Strong Buy) stocks can be found here.

Reinsurance Group’s earnings have beaten estimates in each of the trailing four quarters, with the average earnings surprise coming in at 20.51%. The stock has gained 30.5% year-to-date. The Zacks Consensus Estimate for RGA’s earnings for 2024 and 2025 implies year-over-year increases of 8.2% and 8.3%, respectively.

Brighthouse Financial’s earnings beat estimates in three of the last four quarters and came in below estimates in one quarter. The average earnings surprise was 3.76%. Year-to-date, BHF shares have lost 14.2%. The Zacks Consensus Estimate for BHF’s earnings for 2024 and 2025 suggests year-over-year growth of 28% and 11%, respectively.

The Zacks Consensus Estimate for F&G Annuities & Life’s earnings for 2024 and 2025 implies year-over-year growth of 67.2% and 18.5%, respectively. The consensus estimate for 2024 has increased 4.2% over the past 30 days. Year-to-date, FG stock has lost 9.4%.

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Reinsurance Group of America, Incorporated (RGA): Free Stock Analysis Report

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