Global Life rises as analysts issue bullish takes after earnings

After underperforming for the last six weeks amid the Department of Justice’s subpoena over agent sales practices and the recent short report on alleged widespread fraud, shares of Global Life (GL) are on the rise on Wednesday following quarterly results and comments by the company on its willingness to accelerate and possibly increase buybacks. Keefe Bruyette upgraded the stock to Outperform saying the firm now “feels better” given Global Life’s response to the ongoing issues on its earnings call. Meanwhile, JPMorgan told investors that although there is downside risk to shares if the recent allegations are proven true, the stock price is already discounting a “relatively onerous outcome, even following its recent recovery.”

RESULTS: Globe Life reported on Monday Q1 net operating EPS of $2.67, with consensus at $2.79, and Q1 Net income as an ROE 21.3%. The company also posted insurance underwriting income rising by 4% to $324.4M and said it sees FY24 net operating EPS between $11.50-$12.00, with consensus at $11.60.

Frank Svoboda, Co-Chairman of the Board of Globe Life, stated during the company’s earnings call, according to a transcript, that “Globe Life, its management and our Board of Directors strive to act in accordance with the highest level of ethics and integrity at all levels of the organization. While we believe the short seller’s claims present a false and misleading overall picture of the company and its subsidiaries, as a demonstration of our commitment to operating ethically, the company’s Audit Committee has retained the international law firm, Wilmer Hale, to conduct an independent review of the assertions in the short seller’s report. As you can appreciate, given the ongoing nature of the DOJ’s investigation and out of respect for the integrity of the independent review initiated by the Audit Committee, we are limited in what we can say… While no assurances can be made and we are still evaluating the matter, management did not believe when the subpoenas were received, and does not believe now, that it is either reasonably possible or probable this investigation will result in material liability to the company. As such, the company did not disclose the existence of the request from the DOJ in its Form 10-K.”

Globe Life also said it anticipates share repurchases will continue to be the primary use of parent excess cash flows after the payment of shareholder dividends. “At the midpoint of our earnings guidance, we anticipate approximately $350M to $370M of share repurchases for the year, with approximately half of that occurring in the second quarter and the remainder in the third and fourth quarters. That said, current market conditions, and should they remain favorable, we will clearly consider accelerating repurchases and may consider accelerating some portion of our anticipated 2025 excess cash flows into 2024,” the company stated, according to a transcript.

BULLISH ON GLOBAL LIFE: Keefe Bruyette upgraded Globe Life to Outperform from Market Perform with a price target of $110, down from $130. The firm notes that the stock is down 40% over the past six weeks from a Department of Justice subpoena over agent sales practices and a short report alleging wider spread fraud. Keefe acknowledges ongoing risk from these accusations, but “feels better” following Globe Life’s response on the its earnings call that included a willingness to accelerate and possibly increase buybacks. The firm estimates the company’s run-off value at $80 per share in a distressed run-off scenario that it assigns a 35% weighting for valuation purposes. It sees “meaningful value” at current share levels despite the risks.

ONEROUS OUTCOME PRICED IN: JPMorgan believes Globe Life is among the most compelling stocks in the insurance sector, and one that “presents esoteric risk/upside that is not correlated with macro or sector-specific trends.” Although there is downside risk to shares if the recent allegations are proven true, the stock price is already discounting a “relatively onerous outcome, even following its recent recovery,” the firm tells investors in a research note. JPMorgan believes the significant recent volatility in Globe Life shares affirms its view that the stock price is being driven more by fear and technical factors than a fundamental analysis of the economic value of the business under reasonable positive or negative scenarios. It believes management addressed concerns about the most serious allegations – the Renee Zinsky lawsuit and accusations of kickbacks – and provided its justification for not including the Department of Justice inquiry in the annual filing. JPMorgan keeps an Overweight rating on the shares with a $136 price target.

PRICE TARGET CHANGES: Wells Fargo has lowered the firm’s price target on Globe Life to $108 from $132, while keeping an Overweight rating on the shares. The firm notes Globe Life shares traded up reflective of positive commentary on capital return, even though the company could not say much about ongoing litigation. While not seeing much impact on AIL agents/sales to-date, it is early days, Wells adds.

Truist also lowered the firm’s price target on Globe Life to $80 from $125, maintaining a Hold rating on the shares. The company has retained a major law firm to conduct an independent review of the assertations in the published bear thesis, which management believes are false and misleading, also emphasizing that Globe Life’s billing and revenue recognition policies make it very difficult for bad actors to perpetrate fraud, the firm tells investors in a research note. Truist adds, however, that it sees the stock as “fairly valued.”

Meanwhile, Evercore ISI raised the firm’s price target on Globe Life to $83 from $75, but kept an In Line rating on the shares. The firm also raised its earnings estimates to reflect the company’s decision to get more aggressive on share repurchases and the independent audit being conducted by an outside law firm of its American Income Life operations, though it notes there is still uncertainty with what the DOJ subpoenas might bring.

PRICE ACTION: In morning trading, shares of Global Life have gained nearly 5% to $79.16.