CNO Financial’s High Debts, Poor Q3 Results Raise Caution

We issued an updated research report on CNO Financial Group, Inc. CNO on Dec 3, 2015.

CNO Financial’s low market share in some product lines might limit business opportunities and have an adverse effect on profitability. Life insurance and fixed annuities in particular are the lines in which the company faces threats from owning lesser market shares. Most of its competitors have greater market share, superior financial resources, higher ratings and stronger brand recognition. This might limit business opportunities and have an adverse impact on the company’s profitability, going forward.

Another woe for the company is its high debt level. CNO Financial has a risky business profile with high direct corporate obligations. Moreover, the company requires significant amount of cash each year to fund its operations and repay debt which weighs on its financial position. Also, increased expenses and underwriting and pricing challenges remain headwinds.

Nevertheless we remain encouraged with increased sales at its Washington National and Colonial Penn segments. Investments in key initiatives like agent productivity, geographic expansion, product launches, worksite platform distribution as well as enhancement of operating efficiencies and customer retention also remain impressive.

Moreover, risk reduction initiatives, strong cash flow and capital deployments raise optimism. The company also scores strongly with the credit rating agencies.

In Oct 2015, CNO Financial reported third-quarter earnings of 30 cents that missed the Zacks Consensus Estimate and decreased year over year on high expenses and poor performance by the Bankers Life segment.

CNO Financial currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the multiline insurance space are Allianz SE AZSEY, Old Republic International Corporation ORI and Assured Guaranty Ltd. AGO. While Allinz SE and Old Republic sport a Zacks Rank #1 (Strong Buy), Assured Guaranty holds a Zacks Rank #2 (Buy).

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