On Sep 5, 2014, we issued an update research report on CNO Financial Group Inc. (CNO).
This multiline insurer reported mixed second-quarter results. Though the top line surpassed both the Zacks Consensus Estimate and year-ago number, the bottom line lagged both due to higher expenses. Bankers Life segment also performed poorly in the quarter. Nonetheless, this Zacks Rank #3 (Hold) insurer delivered positive surprises in two of last four quarters with an average beat of 8.6%.
The top-line performance of the Bankers Life segment has been volatile over some time. This volatility may continue as persistently low new money interest rates might weigh on the sales of annuities, thereby raising caution for the times ahead.
Additionally, CNO Financial continues to face underwriting and pricing challenges in the long-term care business. The low interest rate environment also thwarts the bottom line. We do not expect a turnaround as the pricing pressure is expected to persist.
CNO Financial has a risky business profile with about $827.3 million of direct corporate obligations as of Jun 30, 2014.
On the other hand, CNO Financial’s solid liquidity will support investments that include agent productivity, geographic expansion, product launches, worksite platform distribution as well as enhancing operating efficiencies and customer retention. These initiatives are expected to generate sales growth above industry averages.
CNO Financial’s investment portfolio remains strong. Holding some trading securities to neutralize the effect of interest rate fluctuations on the investment portfolio bode well. The company scores strongly with credit rating agencies with healthy financial ratings.
With respect to estimate revision, while the Zacks Consensus Estimate for 2014 slid 1.6% to $1.22 in 2014, the same for 2015 rose 1.4% to $1.43 over the last 60 days.
Stocks to Consider
Better-ranked insurers worth considering are Fortegra Financial Corporation (FRF), XL Group plc (XL) and AmTrust Financial Services, Inc. (AFSI). While XL Group and AmTrust Financial sport a Zacks Rank #1 (Strong Buy), Fortegra Financial carries a Zacks Rank #2 (Buy).
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