On Thursday, Evercore ISI adjusted its outlook on Globe Life Inc. (NYSE: NYSE:GL), reducing the stock's price target to $125 from $138, while keeping an In Line rating. The adjustment follows the issuance of subpoenas by the U.S. Department of Justice (DOJ) to Globe Life and its subsidiary American Income Life (AIL).
The subpoenas are part of an investigation into allegations of fraud and misconduct at one of their leading life insurance agencies, the Arias Organization.
The investigation into the Arias Organization, a major distribution center for American Income Life, comes after reports emerged in 2023 of customer abuse and sexual harassment. Although Globe Life acknowledged the situation during their fourth-quarter earnings call in February, they did not specifically mention the DOJ subpoenas. The company has expressed its belief that the litigation will not have a material impact on Globe Life's overall results or on the operations of American Income Life's agency.
The Arias Organization is not only a significant distributor for American Income Life in the United States but also a key contributor to the company's earnings. Evercore ISI suggests that a potential fine from the DOJ investigation is not expected to be a substantial issue for Globe Life's stock. However, concerns arise over the possibility of a material disruption in sales and recruiting at Globe Life's largest insurance distribution channel, which could pose a more severe problem for the stock, especially considering its current trading at a premium compared to other life insurers.
Globe Life's stock trades at a price to free cash flow (FCF) premium of around 24 times its 2024 FCF and 11 times its 2024 GAAP EPS, which is above the peer average of 12.5 times FCF and 9 times GAAP PE.
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