American bank backs Phoenix Group with 'buy' rating, sees 26% upside

Citi has reiterated its 'buy' rating on Phoenix Group Holdings PLC, citing a "compelling delivery story" underpinned by strong cash generation, an 8.5% dividend yield, and projected 17% compound annual growth in operating EPS between 2025 and 2027. The bank also highlighted a potential £500 million buyback with 2026 full-year results, which could boost EPS and cash flow per share by approximately 10%. Consequently, Citi raised its target price by 5% to £7.69, implying a 26% total expected return.

Analysis

Citi has reiterated a 'buy' rating on Phoenix Group Holdings PLC (LSE:PHNX), framing the insurer's 18-month outlook as a compelling growth and income opportunity. The bank's thesis is anchored in strong fundamentals, including robust cash generation which supports what is described as a 'well-covered' 8.5% dividend yield. Further underpinning this view is a forecast for a 17% compound annual growth rate in operating earnings per share between 2025 and 2027, driven by the company's positioning in structurally growing markets and expected cost savings. A significant potential catalyst is the flagged £500 million share buyback with the 2026 full-year results, which Citi estimates could enhance both earnings and cash flow per share by approximately 10%. Reflecting these positive factors, Citi has increased its price target by 5% to £7.69, implying a total expected return of 26% from current levels.

Key Decisions for Investors

• Investors seeking high income combined with capital growth may find Citi's analysis a strong validation for a long position, given the projected 26% total return and an 8.5% dividend yield.
• The forecast relies heavily on a projected 17% EPS CAGR; therefore, portfolio managers should closely monitor future earnings reports for evidence of execution on the firm's growth and cost-saving initiatives.
• The potential £500 million share buyback in 2026 represents a significant future catalyst that is not yet fully priced in, and any formal announcement of this program should be viewed as a key positive signal for shareholder returns.