By Sam Boughedda
Raymond James analysts initiated Primerica (NYSE:PRI) with a Strong Buy rating and $244 price target on Thursday, stating that the firm likes the company's underappreciated distribution-focused business model and limited balance sheet risk.
Explaining the firm's bullish thesis, they wrote that PRI "does not retain Investment & Savings (ISP) products and reinsures nearly 90% of mortality exposure, which allows it to focus on distribution and enabled it to post stable results during high COVID mortality in 2020-2021."
Primerica shares are up more than 2% Thursday, trading around the $176.62 mark. Raymond James' price target of $244 represents around a 42% upside potential, based on Wednesday's closing price of above $172 per share.
In addition, they noted the company's double-digit EPS growth is supported by predictable ~6% annual increases in adjusted direct premiums, which Raymond James believes are attainable for the next couple of years, assuming mid-digit annual sales increases.
They also pointed to factors such as the targeted middle-income market being large and underserved, as well as the fact that PRI has a resilient business model and solid capital management.
"PRI has $140-145 million of excess capital as of 4Q22. PRI has a $375 million share repurchase program for 2023, implying a payout ratio of ~85%. M&A does not appear to be a focus following its acquisition of e-TeleQuote in 2021 (now Senior Health)," added the analysts. "PRI does not anticipate that Senior Health will require any significant capital from the parent in 2023."