On Wednesday, RBC Capital adjusted its stance on Legal & General Group PLC (LON:LGEN:LN) (OTC: LGGNF), downgrading the stock from Outperform to Sector Perform. The firm also revised its price target to GBP2.45 from the previous GBP2.95.
The change in rating follows a comprehensive review of the company's June 2024 strategy update and the recent challenges presented by disruptive forces in the UK's bulk purchase annuity and pension risk transfer (BPA/PRT) market.
The analyst at RBC Capital provided a rationale for the downgrade, citing significant reductions to the company's operating profit and capital generation forecasts for the fiscal years 2024 through 2026.
A 7% decrease in operating profit and a 20% decrease in capital generation are expected. These revised projections place RBC Capital's estimates within Legal & General's newly provided guidance ranges yet below the consensus of other analysts.
The report elaborates further on the reasons behind the downgrade, noting that Legal & General appears to have limited potential to exceed its financial targets, especially for fiscal year 2024.
The analyst highlighted the absence of imminent catalysts that could drive the stock's performance and pointed out that Legal & General's valuation is now aligned with its UK life insurance peers.
Legal & General's new price target of GBP2.45 reflects the analyst's adjusted expectations and represents a more conservative outlook on the company's ability to navigate the evolving market landscape.
The firm's analysis suggests that while Legal & General remains within the expected guidance range, the company's stock may not offer investors the same level of conviction as it did previously.
The report by RBC Capital serves as an update to investors on the current assessment of Legal & General's market position and financial outlook. The downgraded rating and revised price target indicate a shift in expectations based on the strategic and market factors affecting the company's performance and potential growth.
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