On Dec 2, 2014, we issued an updated research report on StanCorp Financial Group Inc. (SFG).
In the third quarter, StanCorp Financial posted operating net earnings of $1.73 per share, outperforming the Zacks Consensus Estimate by 31% and year-ago earnings by 19.3%. Favorable claims experience in Employee Benefits along with the benefit of pricing actions drove the outperformance. Strong performing Asset Management also added to the upside. This segment’s contribution to top line continues to increase.
StanCorp continues to witness improving benefit ratio.The ratio not only improved in the third quarter, but was also the best since the company went public. In addition, the benefit ratio was 78% in the first nine months, the mid-point of the management guided range of 77% and 79% for 2014.
Though the Zacks Rank #2 (Buy) life insurer achieved its year-end target $40 million to $80 million share repurchase, it did not deter from buying back shares in the third quarter. Continued share buyback lowers the share count resulting in higher bottom line.
The company spent another $33 million in the third quarter to take the year-to-date share repurchase tally to $119.1 million. With respect to dividend hikes, in Nov 2014, the board approved an 18% increase in its annual cash dividend to $1.30 per share, marking the 15th consecutive year of dividend rise. Its dividend increased at a 5-year CAGR of 11% since 2009. The current dividend yield stands at 1.95%, better than the industry average of 1.69%. These strategies help to retain investor confidence in the stock.
However, Employee Benefits’ premiums witnessed lower Employee Benefits sales in the first half as well as low organic growth. However, the third quarter witnessed improvement in sales on increased proposal activity and expects the momentum to continue in the fourth quarter.
Investment income of StanCorp Financial continues to witness a decline due to lower yields. Management expects investment income to remain depressed through 2014. Also, new money investment rate witnessed a sequential decline in the last quarter.
Better-than-expected third quarter results prompted an increase in the Zacks Consensus Estimate for 2014 and 2015 as most of the estimates were revised upward in the last 60 days. The same moved up 8.8% to $5.21 (as all 7 estimates moved north) for 2014 and 1% to $5.59 (as 5 of 7 estimates moved north) for 2015. The expected earnings per share growth rate is 5.3%.
Stocks to Consider
Some better-ranked life insurers include American Equity Investment Life Holding Co. (AEL), China Life Insurance Co. Ltd. (LFC) and Lincoln National Corp. (LNC). While American Equity and China Life sport a Zacks Rank #1 (Strong Buy), Lincoln National carries a Zacks Rank #2 (Buy).
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