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2x Bagger Spin Off

Apr 26, 2023
Jackson Financials

We're adding Jackson Financials JXN is our latest pick. Below is a snippet from one of our write-ups for the Value Investor Members. We put this company on the active recommendation list, late April.

Disclaimer: this analysis is for informational purposes only and is not investment advice. See for detail. 

What does the company do? 

Jackson Financial (JXN) is a financial services company that focuses on the retirement savings and income business in the US.  Jackson was spun off from Prudential in September 2021.

Primarily, Jackson focuses on variable annuities, but also provides fixed index and fixed payout annuities.   These products are sold through a distribution network that covers investment advisors, independent broker-dealers, banks, insurance agents, and third party platforms.  The majority of these sales are serviced by JXN (78%)

JXN generates revenue from fees derived primarily from annuities, net investment income, premiums for insurance products, net gains from investments.  

Due to the US GAAP accounting rules the net income of the company is not reflective of the actual economic earnings of the business.  The volatility in net income is heavily influenced by the change in the unrealized gains in the investment assets of the business.   Therefore to understand this business, investors are best served by understanding the non-GAAP adjusted operating earnings that are presented by the business which are more reflective of the fair value of the earnings in the business. 


Does the business have a competitive advantage? Brand? Network Effects? Switching Cost? Low Cost? Intangible Assets?

The company has several competitive advantages.  The company has a moderate switching cost moat that enables a network effect for them.  The company provides a platform to sell it services and then administer the services.   The cost for  this platform scales very well and reduces overhead for servicing their financial products. 

However, I think the main competitive advantage the company has is its long operating history of disciplined risk management.    In this industry, if the company does not maintain a solid operating risk profile the company may have catastrophic losses.  

Additionally the company has won numerous customer service awards many years in a row (brand moat)

It’s our opinion that this company doesn’t necessarily have an enormous moat and competes against a broad set of financial services but is a large player in this space.  


How durable is the competitive advantage?  What are the risks to the current (legacy) competitive advantage?

The annuity and insurance business is highly regulated.  This will likely deter new entrants into the space but may also pose a risk to the business if government regulation or market conditions change.  Additionally, if the company strays from its risk mitigation strategies it may encounter catastrophic financial losses.  


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