Jackson Financial (NYSE: JXN) is one of the top 10 US retail annuity companies, recording $12.8 billion in annuity sales last year. Spun from Prudential in 2021, JXN has consistently generated and distributed capital to shareholders while historically trading at a discount to peers despite concerns around business opacities, GAAP earnings volatility, and quality differences. Here, we summarized an April bullish thesis published by nha855 on Value Investors Club.
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The thesis backs its outlook with a recent structural change in the company and a track record of aggressive capital generation and returns to shareholders. While JXN expects to return between $550 million and $650 million, or over 13% of its market cap, this year to shareholders via dividends and share buybacks, the capital return could reach $875 million, or over 17% of the company’s market cap, in the following years. The thesis further highlights that JXN could return almost 45% of its market cap to shareholders in the next three years as its rare capital return algorithm is well-positioned to generate shareholder value.
Meanwhile, JXN established and funded Brooke Life Reinsurance Company (Brooke Re) in January. Brooke Re will enable JXN to reduce non-economic hedging and the company’s Risk-Based Capital (RBC) ratio volatility by aligning its reserve liability with business economics, boosting earnings power and the ability to return more capital to shareholders. Moreover, the Brooke Re move is also expected to offer better business visibility for investors. In April, the JXN stock was cheap at 4x P/E with a 12% distributable FCF (dFCF) yield. During a Q4 2023 company call, JXN management projected annual capital generation of over $1 billion from previous guidance of $700 million-$900 million. The thesis highlighted that a $1 billion capital generation could prompt the company to return capital of up to $875 million annually as the Brooke Re transactions seasons.
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