Life Insurance company Voya Financial is taking Wall Street by surprise today, falling to $69.0 and marking a -3.9% change compared to the S&P 500, which moved 1.0%. VOYA is -18.16% below its average analyst target price of $84.31, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Voya Financial has underperfomed the S&P 500 by -24.4%, moving -4.1%.
Voya Financial, Inc. operates as a retirement, investment, and employee benefits company in the United States. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
Voya Financial's trailing 12 month P/E ratio is 11.4, based on its trailing EPS of $6.06. The company has a forward P/E ratio of 7.8 according to its forward EPS of $8.86 -- which is an estimate of what its earnings will look like in the next quarter. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US finance companies is 12.38, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide Voya Financial's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.65. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Voya Financial was $1.49 Billion as of its last annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In VOYA's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $1.23 Billion and they've been growing at an average rate of -1.2%.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Voya financial's P/B ratio is 1.73 -- in other words, the market value of the company exceeds its book value by a factor of more than 1, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.58 as of the first quarter of 2023.
Voya Financial is likely overvalued at today's prices because it has a Very low P/E ratio, an average P/B ratio, and positive cash flows with a flat trend. The stock has poor growth indicators because of its strong operating margins with a stable trend, and an average PEG ratio. We hope this preliminary analysis will encourage you to do your own research into VOYA's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
