We maintain our Neutral recommendation on
CNO Financial Group Inc.
) based on improved book value per share, initiation of a quarterly
dividend, strong investment portfolio and stable ratings. However,
poor operating results of the Bankers Life segment, significant
underwriting and pricing risks and substantial interest and debt
obligations are the downsides.
CNO Financial reported first-quarter 2012 operating income of 15
cents per share, at par with the year-ago earnings. However,
earnings per share surpassed the Zacks Consensus Estimate by a
Despite share repurchases, debt repayment and investment
purchase, CNO Financial's cash position has strengthened over the
years. Moreover, the company approved an additional $100 million
for its share repurchase program in February, as a part of its
constant endeavor to return value to shareholders. Furthermore, the
repayment of the entire outstanding balance on the Senior Health
notes removed the restriction on dividend payment, allowing CNO
Financial to initiate a quarterly dividend policy.
Meanwhile, enhanced asset quality and high statutory earnings
drove an improvement in the consolidated statutory risk-based
capital ratio of CNO Financial's insurance subsidiaries to 360% in
the first quarter of 2012. The healthy financial ratios and reduced
debt also drove the book value of the company by 2.02% to $16.20
per share in the first quarter of 2012 from $15.88 at the end of
2011. Book value is expected to improve further as CNO Financial
continues to deploy cash for share repurchase and debt
However, 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 5.2% in the first
quarter of 2012.
Moreover, CNO Financial requires significant amounts of cash
each year to fund its operations and repay debt, which reduced cash
in 2011 and in the first quarter of 2012. It required over $122
million in cash to service the debt in 2011 and is expected to
require $109 million in 2012.
CNO Financial competes with
). Currently, the company carries a Zacks #3 Rank (a short-term
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