On Monday, B.Riley Securities adjusted its price target for Abacus Life Inc. (NASDAQ: ABL) to $15.00 from the prior $16.00, while reaffirming its Buy rating on the stock. The revision follows the recent common stock offering by Abacus Life, where 10 million shares were issued, with an additional over-allotment option of 1.5 million shares. The offering, priced last week, was lower than initially anticipated, with shares offered at $8.00 each compared to the expected $12.00.
The offering, for which B. Riley Securities served as a joint book-runner, could potentially raise up to $92 million if the over-allotment is fully exercised, which is slightly below the $100 million forecasted in the original model. As a result of the offering, the firm has made adjustments to its financial model, leading to the new price target. The raised capital, complemented by assumed debt, will enable Abacus Life to acquire an additional $138 million in policies, potentially generating $27.6 million in gross revenue based on a 20% margin.
The analyst from B.Riley noted that the additional operating expenses due to the capital raise are expected to be marginal, estimated at $2.5 million. The firm believes that the earnings will significantly increase as the newly acquired capital is reinvested multiple times, which is reflected in their 2025 and 2026 earnings estimates for Abacus Life.
The company's strategy involves purchasing life insurance policies and subsequently selling them to capital providers, maintaining a balance sheet-light approach.
Furthermore, the analyst highlighted that with the additional funds, Abacus Life is likely to target larger policies, which could further improve margins, already averaging in the low 50% range. B.Riley also projects substantial growth potential for Abacus Life's subsidiaries, ABL Wealth and ABL Tech, forecasting a combined revenue of $25 million by 2026 with a 50% margin, led by ABL Tech's expected 80% margin. The analyst suggests that these subsidiaries contribute an additional $2.50 per share in value, based on a 15 times earnings multiple.
In other recent news, Abacus Life, Inc., a prominent buyer of life insurance policies and alternative asset manager, has appointed Elena Plesco as its new Chief Capital Officer. Ms. Plesco, with a decade-long investment experience, joins Abacus from global investment firm KKR, where she played a significant role in the Specialty Finance sector. In her previous roles, notably at J.P. Morgan's investment banking division, she was instrumental in various mergers, acquisitions, and advisory transactions.
At Abacus, Ms. Plesco will be tasked with overseeing the company's capital management strategies and bolstering its global expansion efforts. Abacus CEO Jay Jackson has conveyed optimism about Ms. Plesco's addition to the team, emphasizing her comprehensive investing and financing experience as a crucial asset for the company's future growth.
InvestingPro Insights
Abacus Life Inc. (NASDAQ: ABL) has been navigating a challenging market environment, as reflected in the recent price volatility. The company's aggressive share buyback strategy and the expectation of net income growth this year provide a positive outlook for investors. Notably, Abacus Life's management is confident in the company's profitability, with analysts predicting it will remain profitable this year. The company's liquid assets also provide a cushion, as they exceed its short-term obligations, which is a reassuring sign for investors concerned about financial stability.
From a valuation standpoint, Abacus Life currently trades at an earnings multiple of 559.48, based on the last twelve months as of Q1 2024, indicating a high level of investor expectations for future earnings growth. Despite the stock's recent decline, with a -14.7% one-week total price return, the strong revenue growth of 72.06% over the last twelve months and a gross profit margin of 88.76% suggest underlying business strength. Additionally, with a fair value estimate of $11.57 according to InvestingPro, there is potential for upside if the company can capitalize on its growth strategies and improve its market sentiment.
Investors looking to delve deeper into Abacus Life's financials and future prospects can find additional insights and analysis through InvestingPro. With a comprehensive list of 10 additional InvestingPro Tips, those interested can make more informed decisions. To explore these valuable insights, consider subscribing to InvestingPro using the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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