Goldman Sachs analyst Alex Scott upgrades Voya Financial (NYSE:VOYA) to Buy and downgrades Travelers (NYSE:TRV) to Sell after conducting scenario analyses for both the life insurance and P&C insurance sectors.
As a result, Voya (VOYA) screens well in its life insurance scenario, where Scott is looking for: 1. strong cash conversion and ability to buy back stock; 2. trades cheap on cash flow, earnings, and statutory book value; 3 gets solid benefits from higher interests rates; 4. isn't overly exposed to credit cycle developing; and 5. produces positive organic growth excluding equity market impacts.
In addition to benefits from its de-risking efforts, high free cash flow conversion of earnings, ability to flex margins, and ample buyback capacity, "we see materially better earnings than current Street estimates in VOYA's group benefits business (Health Solutions) as the company has shown strong top-line growth in addition to the margin improvement that we are expecting from lower COVID-19 mortality," Scott wrote in a note to clients.
MetLife (MET) and Equitable Holdings (EQH) remain Buy-rated stocks.
The Travelers (TRV), cut to Sell, has less upside to further margin improvement, and could "actually begin to see margins deteriorate as the property and physical damage severity trends have an impact," Scott wrote.
"TRV is not unique in having this impact, but the analysis at the product level did suggest to us that there is more risk of seeing this pressure at TRV compared with the peers in commercial insurance," he added.
VOYA is rising 0.5% in Friday premarket trading and is down 1.3%.
SA contributor Power Hedge weighs in on Traveler's (TRV) conservative nature