We are reiterating our Neutral recommendation on the shares of
Protective Life Corp.
). Though the company boasts of strong operating fundamentals and
diversified profile, headwinds such as low interest rate, riskier
investment portfolio and weakness in life insurance business
keeps us on the side lines. The life insurer carries a Zacks Rank
Protective Life has been changing its sales mix to improve
life insurance margins and reduce interest rate exposure and
reduce earnings volatility.
Despite increasing competition, we expect Protective Life to
benefit from changing demographic patterns in America where a
large proportion of the population is aging. It thus generates
greater demand for retirement savings products. We expect
the trend will drive strong earnings growth in this business,
given that the Protective is already witnessing strong variable
annuity sales and increased premium.
Protective Life has a long history of successfully acquiring
both closed blocks of business and small companies. It has been
traditionally successful in generating operating efficiencies
along with increasing business scale via these acquisitions.
Going forward, we expect more such deals to be sealed by the
company, given sufficient cash in hand.
However, the company's Life marketing businesses is expected
to remain under pressure throughout 2013, due to headwinds from
low interest rates and slow sales growth from price rise
instituted by the company. Other players that continue to face
headwinds from low interest rates include
Prudential Financial, Inc.
Moreover, in Protective's Life insurance segment, marketing
margins have steadily compressed over the past few years due to
higher reserve funding costs, and we do not foresee material
expansion from current levels.
Over the past 60 days Protective Life has witnessed an
increase in earnings estimates. The Zacks Consensus Estimate for
2013 rose by 0.8% to $3.93 per share as 6 of 9 estimates were
pulled up. The estimate also translates to a 3.9% year over year
Other Stocks to Consider
Lincoln National Corp.
) with Zacks Rank #1 (Strong Buy) is worth investing in.
LINCOLN NATL-IN (LNC): Free Stock Analysis
METLIFE INC (MET): Free Stock Analysis Report
PROTECTIVE LIFE (PL): Free Stock Analysis
PRUDENTIAL FINL (PRU): Free Stock Analysis
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