On Feb 20, 2013, we downgraded
CNO Financial Group Inc.
) to Neutral from Outperform based on rising benefits and
expenses and the consistent weak results at Bankers Life
Why the Downgrade?
The top-line performance of CNO Financial's Bankers Life
segment has been deteriorating over the years. The revenues and
premium collections of the segment declined considerably from
2008 to 2010.
Although collections remained almost flat year over year in
2011, it again declined 5.5% in 2012. The absence of an immediate
solution to arrest this critical decline could start weighing
heavily on the company's bottom line.
Moreover, after posting regular declines since 2008, the
benefits and expenses of CNO Financial surged almost 10% in 2012.
This reversal in the long-term trend was driven by a surge in the
loss on extinguishment of debt along with higher operating costs
While the loss on extinguishment of debt is a non-recurring
item and is not expected to be so high in 2013, increasing
operating costs and expenses remain matters of concern and need
to be checked.
Further, the recapitalization plan implemented in Sep 2012
increased the debt-to-total capital ratio, excluding accumulated
other comprehensive income, by 240 basis points over 2011-end to
20.7% at 2012-end. The company has to regularly make high
principal and interest payments on its outstanding debt. The
current interest rate environment, which is generating spread
compression, also continues to put pressure on the bottom
However, despite these negatives, this multi-line insurance
company with a Zacks Rank #1 (Strong Buy) outperformed in the
fourth quarter of 2012. The company reported fourth-quarter 2012
adjusted operating earnings of 25 cents per share, surpassing the
Zacks Consensus Estimate of 23 cents. Results also surpassed 18
cents earned in the year-ago quarter.
Other Stocks to Consider
Other stocks in the insurance sector that are worth a look are
Assured Guaranty Ltd.
). All these are Zacks Rank #1 (Strong Buy) stocks.
AEGON N V (AEG): Free Stock Analysis Report
AGEAS-ADR (AGESY): Get Free Report
ASSURED GUARNTY (AGO): Free Stock Analysis
CNO FINL GRP (CNO): Free Stock Analysis
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