Today’s news:
• Voya Financial (VOYA) agrees to sell life insurance division.
• Broadcom (AVGO) – The Morgan Stanley analyst turned bullish on AVGO.
• Brief remarks on Baker Hughes (BKR) and Tyson Foods (TSN).
Voya Financial (VOYA – Strong Buy – yield 1.0%) agreed to sell their in-force individual life insurance business and other legacy non-retirement annuity businesses to Resolution Life. Business Wire reported that under the terms of the agreement, “Voya Financial will sell substantially all of its in-force individual life business to Resolution Life for a total consideration of US$1,250 million. The consideration includes cash of US$902 million plus retained surplus notes of US$123 million. Voya Financial will also hold a US$225 million stake in Resolution Life.” The assets are valued at approximately $24 billion. The transaction is expected to close by September 30, 2020.
Voya announced the following benefits and goals of the transaction:
• Transaction accelerates approximately $1.7 billion in deployable capital from Individual Life
• Reduces interest rate, credit and mortality risk and improves the company’s long-term earnings growth profile
• Voya fully focused on its high-growth, high-return, capital-light businesses – Retirement, Investment Management and Employee Benefits
• Voya Investment Management (IM) will be appointed investment manager over approximately $20 billion of these assets
Here’s why the market loved this transaction: Voya had previously expected to generate $1 billion of free cash flow from the Individual Life business from 2019 through 2024. Yet this transaction hands Voya $1.7 billion in deployable capital in 2020. Management plans to use approximately $700 million to retire existing debt and $1 billion for share repurchases (unless an attractive acquisition comes along). That’s in addition to the money that they’d already planned to allocate toward annual share repurchases!
Analysts had previously expected Voya to grow EPS by 25.6% to $6.24 per share in 2020. Upward revisions are now inevitable, and that will draw more attention to the stock. As a result of today’s announced transaction, Credit Suisse and Evercore ISI raised their price targets on VOYA to 72 and 65, respectively.
VOYA rose as much as 8.1% during intraday trading yesterday, and closed up 5.4% at 61.75, a new all-time high. The stock traded 3.9 million shares vs. the average daily volume of 0.9 million shares. That’s very bullish action. Growth stock investors should buy VOYA now.
Broadcom (AVGO – Strong Buy – yield 4.0%) — I ran across this story on my iPhone last night: Morgan Stanley throws in the towel on bearish chip-industry view. Those of you who are interested in my recent recommendation of Broadcom—also a top pick from the Morgan Stanley analyst—or semiconductor stocks might like to read the article. AVGO just began rising from an eight-month trading range, so I don’t think anybody has missed the opportunity to make money in the near term.
Lastly, Baker Hughes (BKR – Buy – yield 3.0%) is pushing up against price resistance at 25. If you were in it for a short-term trade, it’s time to sell. Otherwise, I still expect the share price to continue rising in the coming months. And buy Tyson Foods (TSN – Strong Buy – yield 1.9%). (Refer to the December 17 update.)