We are reiterating our Neutral recommendation on Torchmark Corp. (TMK) as low interest rates and the underperforming Liberty National distribution agency continue to weigh on the positives.
Why the Retention?
For the first nine months of 2013, Torchmark has shown favorable operating results, led by premium growth and an improvement in net investment income.
Torchmark operates its business via its subsidiaries – Liberty National Life, American Income Life Insurance, United Investors Life Insurance, United American Insurance, as well as Globe Life and Accident Insurance.
Torchmark continue to benefit from its most profitable distribution channel named American Income, which has grown consistently over the past several years clocking a 10-year CAGR of 9.1% in premium growth. A growing agent count enabled the channel to generate strong sales and the trend is expected to continue.
The company has another distribution channel, Globe Life, which operates in a relatively non-competitive market, enjoying advantages such as an experienced workforce and better cost-control. The Direct response operation at Globe Life, which generates about 42% of life sales has continually evolved over the years and we expect the increased contribution from the operation given improving response rates and positive results on rate adjustments and higher face amount offerings on adult insurance products.
We are also optimistic regarding Torchmark’s acquisition of privately held supplemental health insurer, Family Heritage Life Insurance Company of America, which was immediately accretive to the company’s earnings.
However, the underperforming Liberty National unit overshadows these positives.
Though growth initiatives have been undertaken, hindrances to growth remain. In addition, a low interest rate environment remains a headwind.
Nevertheless, this insurer is consistently maintaining a strong capital position.
Other Stocks to Consider
While Torchmark retains a Zacks Rank #4 (Sell), better-ranked stocks such as Primerica, Inc. (PRI) with Zacks Rank #1 (Strong Buy), and China Life Insurance Co. Ltd. (LFC) and Lincoln National Corp. (LNC) with Zacks Rank #2 (Buy), are worth considering.
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment