NEW YORK (TheStreet) – Dai-ichi Life Insurance's $5.7 billion acquisition of Protective Life (PL) in June not only represents a 37% premium from where the Alabama-based life insurer was trading a month before the deal, but shows the potential value in other U.S. insurance companies.
The deal values Protective Life at a price-to-earnings ratio of 13.04x (2015 estimates), price-to-sales ratio of 1.36x and price-to-book ratio of 1.28x. This compares with the $13.9 billion market cap of Lincoln National (LNC), which trades at a forward P/E ratio of 8.79x, P/S ratio of 1.14x and a P/B ratio of 0.97x.
Following an 86% rally in 2013, shares of Lincoln National, a life insurance and retirement services company, have underperformed against the broader market through the first seven months of the year (3.31% gain compared with the S&P 500's year-to-date gain of 7.03%). Lincoln as a whole may not be a potential target of Dai-ichi, given that Protective Life was the largest Japanese purchase of a U.S. insurance company, but segments of Lincoln could be attractive to other Japanese insurers as they struggle with a smaller market due to an aging population.
Wall Street remains bullish on Lincoln National, with an average analyst price target of $59 (11.7% above the current share price). Even at $59, the stock would still be trading under a forward P/E ratio of 10x with 8.7% earnings per share growth (9.9% this year) and 4.7% revenue growth (6.7% this year). In the three most recent analyst price target changes, Raymond James maintained its strong buy rating on 7/17 ($58 -> $63), Sterne Agee maintained its neutral rating on 7/17 ($58 -> $59), and Deutsche Bank maintained its buy rating on 7/14 ($56 -> $60).