Life Insurance company Reinsurance is taking Wall Street by surprise today, falling to $192.62 and marking a -6.6% change compared to the S&P 500, which moved -3.0%. RGA is -20.07% below its average analyst target price of $241.0, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Reinsurance shares have outstripped the S&P 500 by 22.6%, with a price change of 37.8%.
Reinsurance Group of America, Incorporated engages in reinsurance business. 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.
Reinsurance's trailing 12 month P/E ratio is 15.0, based on its trailing EPS of $12.87. The company has a forward P/E ratio of 8.4 according to its forward EPS of $22.81 -- which is an estimate of what its earnings will look like in the next quarter. As of the second quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 19.48, and the S&P 500 has an average of 28.21. 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 Reinsurance'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 0.52. 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!
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Reinsurance's free cash flow, which was $4.04 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $2.77 Billion and they've been growing at an average rate of 16.2%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in RGA have received an annualized dividend yield of 1.6% on their capital.
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). Reinsurance's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.3, but is still below the average P/B ratio of the Finance sector, which stood at 1.85 as of the second quarter of 2024.
Since it has a Very low P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend, Reinsurance is likely undervalued at today's prices. The company has poor growth indicators because of an above average PEG ratio and weak operating margins with a stable trend. We hope you enjoyed this overview of RGA's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
