On Dec 24, 2013, we upgraded our recommendation on CNO Financial Group Inc. (CNO) to Outperform based on its favorable prospects and outlook for the upcoming years. This insurance holding company reported strong third-quarter results and currently carries a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
CNO Financial has delivered positive earnings surprise in three of the last four quarters, with an average beat of 15.4%. In the last reported quarter, earnings per share came in at 33 cents that surpassed the Zacks Consensus Estimate by 22.2% and increased year over year by an impressive 200%. Revenues were almost in line with the year-ago number and also surpassed the Zacks Consensus Estimate.
Apart from continued strong earnings results, the future of the company look promising. In fact, the recently stated 2014 and the long-term outlook by the company reinforces our optimism. Significant earnings improvement and an extensive capital deployment plan positions the company to achieve its long-term return on equity goal of 9% by 2015.
The value of CNO Financial’s investment portfolio is steadily increasing. We believe strong liquidity positions the company to undertake further investments for enhancing infrastructure, distribution capabilities and advertising. Even management remains keen to invest $45–$55 million in key initiatives in 2014, including agent productivity, geographic expansion, product launches, worksite platform distribution, enhancing operating efficiency and customer experience.
Further, in Dec 2013, the company announced a $300 million hike in its securities repurchase program – consisting of warrants and stocks – on strong organic growth and capital generation. The company is likely to spend $250 million on securities repurchases in 2013 and $250–$300 million in 2014. We believe these efforts should help CNO Financial to improve operating performance and boost earnings going forward.
Meanwhile, enhanced asset quality and high statutory earnings have been driving the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries. Management expects this ratio to escalate to around 400% in 2014. The healthy financial ratios and reduced debt continue to drive book value, which is expected to grow around 10% annually through 2016. Notably, CNO Financial boasts strong credit ratings.
Other Stocks to Consider
Other players in the insurance industry which look attractive at current levels include Kemper Corporation (KMPR), Cigna Corp. (CI) and Prudential plc (PUK). All these stocks carry the same Zacks Rank as CNO Financial.
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