Retirement Demand Will Support Annuity Market Resilience

Key Takeaways

• Leadership in innovative annuity products and persistent demand for secure retirement income are driving steady, high-quality revenue and expanding Jackson's margins.
  
• Digital investments and strong capital management enhance distribution reach, operational efficiency, and support for long-term shareholder value creation.
  
• Fee and margin pressures, asset risk, and regulatory uncertainty threaten Jackson's long-term revenue growth, profitability, and flexibility as annuity sales face headwinds and competition intensifies.

Catalysts

Through its subsidiaries, provides suite of annuities to retail investors in the United States.

• Ongoing growth in demand for annuity and retirement products, supported by the increasing number of Americans approaching retirement age, continues to boost Jackson's sales pipeline-recent results show retail annuity sales up 4% year-over-year with RILA balances up 80%. This underpins strong revenue and account value growth potential.
  
• The heightened emphasis among both consumers and financial advisers on guaranteed retirement income and financial security has resulted in growing fee income from Jackson's sizable variable annuity book (over $1B in quarterly fee income), alongside strong adoption of innovative products like RILAs, supporting stable and recurring revenue streams and increased earnings quality.
  
• The strategic shift toward greater product diversification, especially fee-based and spread products like RILA and fixed annuities, is expanding Jackson's margins, reducing earnings volatility, and positioning the company to benefit from long-term trends in defined contribution retirement plans-positively impacting net margins and overall profitability.
  
• Investments in digital tools and enhanced advisor support platforms enable Jackson to reach new distribution partners and improve customer retention, evidenced by a significant share of RILA sales to new or lapsed advisers and recent service innovations; these initiatives are likely to accelerate revenue growth and operating efficiency.
  
• Strong and growing capital generation, disciplined risk management, and effective capital return (with share repurchases and rising dividends) drive increases in EPS and book value per share, while growing liquidity and optionality for M&A or reinvestment provide long-term support for earnings growth and shareholder value creation.

Jackson Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jackson Financial's revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.2% today to 9.2% in 3 years time.
• Analysts expect earnings to reach $723.6 million (and earnings per share of $12.2) by about August 2028, up from $-13.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from -528.0x today. This future PE is lower than the current PE for the US Diversified Financial industry at 16.5x.
• Analysts expect the number of shares outstanding to decline by 5.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.42%, as per the Simply Wall St company report.

Jackson Financial Future Earnings Per Share Growth

Risks

• Jackson's persistent net outflows in its variable annuity business, driven by the aging of policyholders and large past sales years exiting surrender periods, indicate a shrinking in-force block which, if sustained, could create long-term pressure on fee-based revenue and overall AUM growth.
  
• Despite recent sales growth in RILA products, these remain highly competitive and tied to equity market sentiment; any broad shift in investor preference away from annuities toward liquid, low-cost investment options, or market saturation, could reduce long-term demand and compress revenue and net margins.
  
• The company's increasing allocation to higher-yielding but potentially riskier asset classes (such as emerging markets debt, residential mortgages, and structured securities) to support spread product earnings exposes Jackson to asset quality and credit risk, which may elevate losses or capital requirements in a downturn, impairing net income and capital ratios.
  
• Reliance on the success of affiliated reinsurers (like Brooke Re) and the potential future use of new captive structures to optimize capital may attract increased regulatory scrutiny or changes in capital requirements, introducing long-term regulatory risk and higher compliance costs that could negatively impact earnings and capital flexibility.
  
• The sector's capital-intensive nature, renewed industry focus on product standardization, and persistent fee compression-especially for RILA and variable annuities-may limit Jackson's ability to sustain current profitability levels, resulting in lower returns on equity and downward pressure on long-term earnings and share price growth.

Valuation

• The analysts have a consensus price target of $103.0 for Jackson Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $118.0, and the most bearish reporting a price target of just $95.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.8 billion, earnings will come to $723.6 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 9.4%.
• Given the current share price of $98.54, the analyst price target of $103.0 is 4.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.