) has announced that it is about to acquire privately-held
supplemental health insurer Family Heritage Life Insurance Company
of America for about $218.5 million. Torchmark's internal funds
would be utilized to finance this definitive deal.
Torchmark will market Family Heritage's supplemental health
insurance products to middle-class families via the latter's 1200
captive sales agents. The acquisition is deemed as the best fit for
Torchmark since it was aiming to grow in supplemental health
insurance line of business, which provides higher margin.
Family Heritage, based in Ohio, is a company that has
demonstrated strong performance with substantial premium growth. In
addition to this, the company has solid underwriting margins.
The acquisition is expected to close in the early fourth quarter
of 2012 and will be additive to Torchmark's earnings immediately.
Moreover, the deal would leave the free cash flow of the company
Torchmark expects the acquisition to add 1 to 3 cents per share
to its 2012 earnings and 13 to 17 cents per share to the 2013
Late last month, the company reported second-quarter 2012 net
operating income of $1.30 a share, improving 19.3% year over year.
The increase was due to higher insurance underwriting income
coupled with increased investment income. Lower share count
compared with the year-ago period, owing to share repurchases, also
buoyed the bottom line.
While releasing its second quarter earnings, Torchmark's
management announced fiscal 2012 guidance for earnings per share in
the range of $5.08 - $5.26. This showed a reduction from the
company's earlier projected range of $5.10 - $5.40 per share.
Nevertheless, we believe this acquision will help the company in
achieving its guidance.
Torchmark, which competes with
), currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on its shares.
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