Retirement, investment, and insurance company Voya Financial, Inc. (VOYA), which is based in New York City, operates through three segments: Retirement; Investment Management; and Employee Benefits. The company has an ISS Governance QualityScore of 2, indicating relatively low governance risk.

On December 21, the S&P Dow Jones Indices announced that VOYA would be added to the S&P 500 Midcap 400 Index before the market opened on December 28, 2021. 

The stock has gained 8.7% in price since this news was announced to close yesterday’s trading session at $66.46.

Here is what could shape VOYA’s performance in the near term:

Ambitious Financial Targets

VOYA aims to achieve a 12%-17% adjusted EPS growth rate per annum through 2024. The company plans to fuel its bottom-line growth through margin expansion, capital management, and net revenue growth. It plans to realize a 90%-100% free cash flow conversion over the next three years and achieve operating ROE in the range of 14%-16%.

Regarding this, VOYA Chairman and CEO Rodney O. Martin, Jr. said, “Our significant financial, operational and cultural transformation has enabled Voya to become a purpose-driven health, wealth and investment company with a clear focus on serving the workplace and institutions. Voya is now poised to drive greater success by providing valuable solutions that are centered on the growing needs of our customers and clients.”

Mixed Growth Prospects

Analysts expect VOYA’s revenues to increase marginally in the current quarter (ending December 2021) and 2.5% in the next quarter but decline 1.8% next year. However, consensus EPS estimates indicate a 24.7% decline in the current quarter, a 17.6% slump in the next quarter, and a 15.9% decline in 2022.

Lower-Than-Industry Valuation

In terms of forward non-GAAP P/E, VOYA is currently trading at .37x, 26.3% lower than the industry average of 11.35x. The stock’s forward non-GAAP PEG multiple of 0.29 is 71.5% lower than the industry average of 1.03.

In addition, VOYA’s forward Price/Sales and EV/Sales ratios of 1.15 and 1.94, respectively, compare with 3.39 and 2.88 industry averages. Also, the stock’s 9.43 forward EV/EBIT multiple is 20.2% lower than 11.81 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the five Wall Street analysts that rated VOYA, four rated it Buy while one rated it Hold. The $77.20 12-month median price target indicates a 16.2% potential upside from yesterday’s closing price of $66.46. The price targets range from a low of $75.00 to a high of $79.00.

POWR Ratings Reflect Uncertainty

VOYA has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

VOYA has a C grade for Growth and Quality. The company’s revenues have declined at a 19.1% rate per annum over the past three years. However, its EBITDA has risen at a 46.6% CAGR over this period, justifying the Growth grade. Furthermore, VOYA’s 43.96% trailing-12-month net income margin is 46.8% higher than the 29.95% industry average. However, the company’s trailing-12-month levered free cash flow margin is negative, which is in sync with the Quality grade.

Of the 53 stocks in the C-rated Asset Management industry, VOYA is ranked #47.

In addition to the grades I have highlighted, view VOYA ratings for Momentum, Sentiment, Stability, and Value here.

Bottom Line

The increasing employment rate and wages amid the global economic recovery will likely boost the demand for VOYA’s service offerings in the coming months. Analysts expect the company’s revenues to rise over the next year. However, the company’s poor cash flows are a cause for concern. Over the trailing 12 months, VOYA’s net revenues were  $4.50 billion, while its net operating cash inflows stood at $353 million. Furthermore, the company’s levered free cash outflow amounted to $3.52 billion. Given this backdrop, we think investors should wait until VOYA’s cash flows improve before investing in the stock.

How Does Voya Financial, Inc. (VOYA) Stack Up Against its Peers?

While VOYA has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Silvercrest Asset Management Group Inc. (SAMG), Gamco Investors, Inc. (GBL), and Diamond Hill Investment Group, Inc. (DHIL), which have an A (Strong Buy) rating.

VOYA shares were trading at $66.70 per share on Thursday morning, up $0.24 (+0.36%). Year-to-date, VOYA has gained 14.65%, versus a 29.78% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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