On Tuesday, UBS upgraded Aegon (NYSE:AEG) NV stock, listed on Euronext Amsterdam and the New York Stock Exchange, from Neutral to Buy. The firm set a new price target for the insurance company at EUR6.55, slightly lower than the previous EUR6.65 target.
UBS anticipates that Aegon will maintain its strategy of share buybacks into the future. The firm forecasts recurring share repurchases starting from 2025, amounting to approximately EUR 300 million annually. This move is expected to result in a 9% all-in fiscal year 2025 earnings yield for Aegon, which is above the sector average but consistent with other Dutch insurers.
In addition to long-term projections, UBS sees an opportunity for Aegon to announce a special share buyback of around EUR 100 million, approximately 1% of the company's market capitalization, at the third-quarter 2024 results presentation on November 15. This potential buyback is based on the expectation that Aegon will have completed its current EUR 200 million share repurchase program by that time.
UBS also addressed the possibility of Aegon selling its stake in ASR, another insurance company. The analyst firm does not view a share buyback resulting from such a sale as adding value.
However, UBS still sees potential for additional upside to their base case if Aegon successfully reduces risk in its non-core assets in the United States. The firm's analysis suggests this de-risking could further enhance Aegon's financial profile and stock performance.
In other recent news, Aegon NV has been in the spotlight following the release of its first-half 2024 financial results. Despite market concerns over mortality risk, Aegon has revised its full-year 2024 operating profit forecast upwards, now expecting an operating profit between EUR800 million and EUR900 million.
This is an increase from the previous estimate of EUR700 million to EUR800 million. Berenberg has maintained its Buy rating on Aegon, despite the recent earnings volatility.
The company has also responded to higher mortality costs by bolstering its reserves, allocating an additional USD400 million for future U.S. mortality risks. This strategic move is anticipated to reduce mortality costs by USD50 million every half-year under International Financial Reporting Standards (IFRS) operating profit.
Amid these developments, Aegon reported a mixed financial picture during its earnings call. The company experienced an operating result decrease of 8% compared to the previous year, primarily due to unfavorable mortality claims in the US and a charge of EUR 430 million from non-operating items. However, Aegon's solvency ratios improved, and they remain on track to achieve their financial targets for 2025.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's bullish stance on Aegon NV. The company's market cap stands at $10.32 billion, with a dividend yield of 4.73% as of the latest data. This attractive yield is complemented by Aegon's consistent dividend growth, with an impressive 37.55% increase over the last twelve months.
InvestingPro Tips highlight Aegon's commitment to shareholder returns, aligning with UBS's expectations. The company has been aggressively buying back shares and has raised its dividend for 4 consecutive years. This trend supports UBS's projection of continued share repurchases and potential special buybacks.
While Aegon wasn't profitable over the last twelve months, with a negative operating income of $249.6 million, analysts predict the company will return to profitability this year. This optimism is reflected in the stock's performance, with a robust 43.46% total return over the past year.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Aegon, providing a deeper understanding of the company's financial health and future prospects.
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