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Lincoln National's Portfolio Alteration Initiatives Hold Promise - Analyst Blog

On May 14, we issued an updated research report on Lincoln National CorporationLNC .

Lincoln National's first-quarter 2015 earnings missed the Zacks Consensus Estimate but improved marginally year over year due to a rise in the top line.

Lincoln National's latest portfolio alterations, that offer universal life policies with secondary guarantees, should be accretive to the company's earnings, going forward. This, along with the reduction in variable annuity sales with living benefit riders and interest rate risk, and divestment of non-core assets are driving Lincoln National toward favorable operating trends. Re-pricing within the Group Protection segment is further expected to boost the company's earnings.

Additionally, Lincoln National has taken steps to protect and build its capital base and mitigate balance sheet risks in order to combat the challenging operating environment. The company has also progressed substantially in implementing long-term solutions for reserve financing that aligns asset-liability balance more closely. This has resulted in the reduction of debt along with accretion in operating return on equity (ROE). It has also led to an improvement in book value per share and operating cash flow during the first quarter 2015.

Moreover, the company has been capitalizing on the opportunities provided by the new regulatory changes, effective since 2009. Lincoln National has also remained focused on product development to increase its competitive position in small to medium-sized corporate, and employee benefit markets.

While this puts ample risk on the company's market share through product pricing and new product offerings, it also creates modest risk on client retention and net flows which have been declining of late.

Lincoln National's earnings are significantly exposed to the performance of the equity markets, financial leverage and long-term issues of funding the growth in reserves associated with life policies.

The lower-than-expected investment income and deteriorated realized gains due to low interest rate environment further adds caution for future earnings visibility and hence, threatens the capital position. This, in turn, implies subdued investment performance over the next couple of years.

Lincoln National's top-line growth has remained inconsistent over the past quarters. There has been a decline in the company's life insurance sales due to low demand, reduced client activity and pricing pressure amid the ongoing market volatility. Additionally, restructuring initiatives are likely to weigh on expenses, thereby limiting margin expansion.

Currently, Lincoln National carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the life insurance sector include Sun Life Financial Inc. SLF , American Equity Investment Life Holding Co. AEL and Manulife Financial Corporation MFC . While Sun Life Financial sports a Zacks Rank #1 (Strong Buy), American Equity Investment and Manulife Financial hold a Zacks Rank #2 (Buy).

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LINCOLN NATL-IN (LNC): Free Stock Analysis Report

MANULIFE FINL (MFC): Free Stock Analysis Report

AMER EQUITY INV (AEL): Free Stock Analysis Report

SUN LIFE FINL (SLF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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