On Wednesday, Voya Financial (NYSE: NYSE:VOYA) saw its price target increased to $82.00 from $79.00 by Evercore ISI, while the firm maintained an Outperform rating on the stock. This adjustment follows Voya Financial's announcement earlier today that it has entered into a definitive agreement to acquire the full-service retirement plan business from OneAmerica.
The transaction, which is expected to close on January 1, 2025, will add $47 billion in assets to Voya's full-service emerging and middle market business, as well as $15 billion in recordkeeping.
Voya Financial plans to utilize $200 million from its excess capital, which totals over $400 million, to fund the acquisition without affecting its debt refinancing and capital return strategies. The initial deal includes a $50 million purchase price, required regulatory capital, and transaction expenses. There is also a potential earnout payment of $160 million in the second quarter of 2026, bringing the total capital used for the transaction to $360 million.
The company expects the deal to contribute over $75 million in pretax earnings and over $200 million in net revenue one year after closing. The internal rate of return (IRR) for the transaction is anticipated to exceed 30%, and the deal is projected to increase forward earnings by approximately 7%, which is more than the estimated 5% from buybacks at the current valuation.
The acquisition is viewed positively as it is expected to be financially beneficial for Voya, enhancing its higher margin full-service retirement and fee-based assets under management (AUM), and improving the mix of fee versus spread-based AUM. With a clearer outlook on earnings growth for 2026, the price target has been raised to reflect the anticipated attractive return on capital and earnings accretion that should materialize in 2026.
While Evercore ISI has not yet adjusted its 2025 earnings per share (EPS) estimates for Voya to reflect the impact of the deal, the firm believes the transaction will have a more significant effect on the 2026 estimates.
The acquisition is seen as providing a buffer against potential market volatility, with the OneAmerica portfolio's lower risk profile offering opportunities for portfolio repositioning to mitigate risks from interest rate declines or equity market corrections. Moreover, the deal's value is largely tied to the 2026 earnout, which could offer protection against potential shock lapses.
In other recent news, Voya Financial has made significant strides, including a strategic acquisition and strong financial results. The company announced the acquisition of OneAmerica Financial's full-service retirement plan business, bolstering its Wealth Solutions division by adding approximately $47 billion to its assets under administration. This move is anticipated to strengthen Voya's presence in emerging and mid-market segments.
In financial developments, Voya Financial reported an adjusted operating earnings per share of $2.18 and a GAAP net income of $201 million for the second quarter of 2024. The company's wealth and investment management segments demonstrated growth, contributing to a robust excess capital position of approximately $200 million. Additionally, Voya Financial surpassed $100 billion in assets across its multiple employer solutions, marking a 15% increase in total assets since last year.
The company also announced the appointment of Michael Katz as the new CFO, set to take his position on January 1, 2025. Katz, a long-standing member of the Voya team, will succeed Don Templin, who plans to retire.
Analysts have provided mixed reviews on Voya's prospects. Piper Sandler reaffirmed its Overweight rating, while Morgan Stanley (NYSE:MS) downgraded Voya's stock from Overweight to Equalweight due to concerns about the Health Solutions segment's performance. Barclays (LON:BARC) initiated coverage on Voya Financial with an Overweight rating, citing the company's strong and consistent cash flow.
These are the recent developments for Voya Financial, reflecting a period of significant growth and strategic acquisitions, along with some challenges that the company plans to address.
InvestingPro Insights
Following the recent developments with Voya Financial's acquisition strategy, real-time data from InvestingPro provides a deeper understanding of the company's financial health. Voya Financial's market capitalization stands at a robust $7.16 billion, reflecting the size and stability of the company in the financial sector. This is supported by a favorable price-to-earnings (P/E) ratio of 9.32, which suggests that the stock may be undervalued when considering its earnings potential. Additionally, the company boasts a significant revenue growth of 16.95% over the last twelve months as of Q2 2024, indicating a strong capacity to increase its earnings.
InvestingPro Tips highlight that Voya Financial has been proactive in enhancing shareholder value, as evidenced by its aggressive share buyback program and a high shareholder yield. Moreover, the company has a track record of raising its dividend for 6 consecutive years, underlining its commitment to returning value to its investors. With 12 consecutive years of maintained dividend payments, Voya Financial demonstrates a reliable dividend policy. These insights, coupled with predictions that the company will remain profitable this year, provide investors with a comprehensive view of Voya's financial stability and growth prospects.
For those seeking additional insights, InvestingPro offers more tips on Voya Financial, accessible at https://www.investing.com/pro/VOYA, which could further aid in making informed investment decisions.
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