The Challenger Ltd (ASX: CGF) share price opened in the red on Friday morning. At the time of writing, the share price is 0.98% lower and changing hands at $9.07 a piece.
Over the past month, Challenger's shares have risen 3.6% and they've surged 45.2% higher over the year.
Today's dip follows the annuities company's first-quarter update, released yesterday morning.
It revealed that total life sales were up 4% during the quarter to $2.5 billion. Meanwhile, lifetime annuity sales were up 16% to $320 million during the quarter.
Fixed term annuity sales grew strongly and were up 29% over the period, too, to $1.1 billion, and retail fixed term annuity sales fell 18% during the quarter.
Over in Japan, its annuity sales were stable at $246 million for the period.
Management said it believes the company is tracking to its FY26 guidance. Therefore, it has reaffirmed its earnings per share guidance of between 66 cents and 72 cents per share.
Macquarie Group Ltd (ASX: MQG) has sent a note to investors following Challenger's latest announcement, updating their stance on the shares.
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What's ahead for Challenger shares?
The broker has confirmed its outperform rating on Challenger shares. It has also lowered its target price to $9.30 per share, down from $9.60 in August. At the time of writing, this represents a potential upside of 2.5% for investors over the next 12 months.
"Valuation: We trim our 12-month target price by 3% to A$9.30, from A $9.60, based on a DCF/Gordon Growth methodology," the broker said in its note.
"Outperform. Buybacks and an additional Japanese distribution partnership are in our numbers."
The broker added that Challenger's FY26 guidance, normalised basic earnings per share of 66 to 72, was reaffirmed with group normalised net profit after tax of between $455 million and $495 million.
"Overall, the results were mixed with a decent showing in the annuities book offset by disappointing flows in the Funds Management (FM) division," it said.
Japanese sales represented ~15.0% of 1Q26, which represents normal 1Q seasonality for the group.
"Earnings changes: We lower earnings by 2.7% for FY26E, 4.5% for FY27E, and ~4% thereafter to reflect the quarterly flows update in both the annuities and Funds Management divisions," Macquarie said.
"CGF currently trades at a ~13.6x 12-month forward P/E on FactSet consensus, ~15% above the 3-yr average of ~11.8x. This translates to a ~30% discount vs the ASX100 (compared with the 3-year average discount of ~27%)."
