David Einhorn Having a Banner Year in 2022: 5 Favorite Stock Picks

2. Brighthouse Financial, Inc. (NASDAQ:BHF)

Greenlight Capital’s Stake Value: $187.92 million

Percentage of Greenlight Capital’s 13F Portfolio: 11.94%

Number of Hedge Fund Holders: 32

Based in North Carolina, Brighthouse Financial, Inc. (NASDAQ:BHF) deals in the provision of life insurance and annuities. David Einhorn was the largest shareholder of the firm as of the first quarter of 2022, with a $187.9 million stake. In total, 32 hedge funds were long on the company shares in the first quarter of 2022, up from 30 in the previous quarter.

On April 12, Wells Fargo analyst Elyse Greenspan upgraded the company shares to ‘Equal Weight’ from ‘Underweight’ with a revised price target of $54 from $53. The analyst notes that long-term interest rates have significantly increased, and this could benefit Brighthouse Financial, Inc.’s (NASDAQ:BHF) valuation. She also holds that the company can repurchase a meaningful portion of its market cap over the next 3 years.

Brighthouse Financial, Inc. (NASDAQ:BHF) posted EPS of $3.79 for the first quarter, outperforming analysts’ forecasts by $0.30. However, quarterly revenue of $2.24 billion fell below market estimates by $22 million, and declined 5.48% in comparison to the year-ago quarter.

Greenlight Capital shared its views on Brighthouse Financial, Inc. (NASDAQ:BHF) in a letter to investors in the first quarter of 2022. The fund said:

“Speaking of rising interest rates, it is difficult to find a company that we think benefits more from rising rates than Brighthouse Financial (BHF). For the better part of half a decade, we have experienced the “bear case” that BHF is beholden to capital markets and particularly sensitive to low interest rates. Our view is that the shares have been inexpensive despite a low interest rate environment. With the environment changing, it turns out that the capital market sensitivity goes both ways. Goldman Sachs estimates that the interest rate increase just through the end of March will add $2 billion to BHF’s distributable earnings over the next 5 years. That would seem significant compared to BHF’s entire equity market capitalization of $4 billion. Two billion dollars would equate to about $26 per share. The stock ended the quarter at $51.66.

Gains from a higher interest rate environment need not be temporary. The company is now presented with an opportunity to reduce interest rate risk either by hedging or by transferring risk of its legacy business to a third party reinsurer. BHF has not attracted a new top 30 institutional shareholder in more than a year and its share price fell by less than one percent during the quarter. Management is taking advantage of the rising discount to book value by repurchasing shares. The improved environment should enable even faster share repurchases, which we would encourage the company to pursue.”