Standing out among the Street's worst performers today is Aegon, a life insurance company whose shares slumped -9.6% to a price of $6.1, 15.41% below its average analyst target price of $7.21. AEG lagged the S&P 500 index by -9.0% so far today and by -4.8% over the last year, returning 16.0%.
Aegon Ltd. provides insurance, pensions, retirement, and asset management services in the United States, the Netherlands, the United Kingdom, and internationally. 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.
Aegon does not release its trailing 12 month P/E ratio since its earnings per share of $-0.08 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for AEG of -76.2. Based on the company's positive earnings guidance of $0.29, the stock has a forward P/E ratio of 18.7. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the finance sector has an average P/E ratio of 20.04, and the average for the S&P 500 is 29.3.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Aegon was $864.0 Million as of its last annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $853.5 Million and they've been growing at an average rate of -26.1%. AEG's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 4.7% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
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). Aegon's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.2, but is still below the average P/B ratio of the Finance sector, which stood at 1.86 as of the third quarter of 2024.
Aegon is likely overvalued at today's prices because it has a negative P/E ratio., a lower P/B ratio than its sector average, and positive cash flows with a downwards trend. The stock has poor growth indicators because of its no published profit margins with a unknown rate of growth, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into AEG's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
