On Nov 22, we downgraded life insurer
Lincoln National Corp.
) to Neutral based on its moderated growth momentum alongside a
deteriorating investment portfolio. Yet, core business growth in
driving operating leverage.
Why the Downgrade?
Lincoln National has witnessed some moderation since its
third-quarter 2013 results on Oct 30. Both operating earnings of
$1.34 per share and total revenue of $3.1 billion topped the
Zacks Consensus Estimate of $1.23 a share and $3.0 billion,
respectively, during the quarter.
Both earnings and revenues also exceeded the year-ago results
by 5.5% and 6%, respectively. Overall, Lincoln National delivered
positive earnings surprises in 3 of the last 4 quarters with an
average beat of 4.0%.
Operating growth was driven by improved sales of re-priced
products as well as change in the business mix to higher return
products. Additionally, consolidated deposits and ending account
balances displayed double-digit growth. Higher retention and
equity market appreciation also drove net inflows, which surged
76% over the prior-year quarter. Consequently, book value per
share and return on equity (ROE) also witnessed accretion.
Following the release of the third quarter results, the Zacks
Consensus Estimate for 2013 rose 2.3% to $4.89 per share in the
last 30 days. The same for 2014 inched up 0.8% to $5.31 a share.
Meanwhile, the current estimates reflect 9.4% year-over-year
growth in 2013 and an 8.7% upswing in 2014. With the Zacks
Consensus Estimates for both 2013 and 2014 rising steadily, the
company now has a Zacks Rank #2 (Buy).
Lincoln National enjoys a strong position in its markets of
operation. Fundamentals have also been benefiting from improved
product pricing, claims management, diversified insurance
products portfolio, risk management and a strong distribution
However, deteriorated financial leverage and investment
portfolio amid intense competition and low interest rate
environment increase operating and financial risks. Nonetheless,
Lincoln National's incremental capital deployment, consistent
annual dividend hike and healthy ratings score well with the
Other Insurers That Warrant a Look
Other insurers like
American Equity Investment Life Holding Co.
Manulife Financial Corporation
) also show slight upward pressure in the near term, , sporting
the same Zacks Rank as Lincoln National.
AMER EQUITY INV (AEL): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
PRIMERICA INC (PRI): Free Stock Analysis
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