In order to enhance shareholders’ value, CNO Financial Group, Inc. (CNO) has increased its share repurchase program by $400 million. Alongside, the company declared a quarterly cash dividend of 6 cents per share that will be paid on Dec 24, 2014 to shareholders of record as of Dec 10, 2014.
CNO Financial spent $164.9 million toward the repurchase of shares and equivalents under its securities repurchase program in the last reported quarter. This includes buybacks worth $4.5 million settled in the fourth quarter of 2014. Till Sep 30, 2014, the company deployed a total amount of $301.5 million toward repurchase of securities under the current program. As of that date, CNO Financial was left with 207.6 million shares under its current authorization and has the authority to buy back stock worth up to $95.9 million.
The above-mentioned $400 million increase in the share repurchase program is aimed at achieving the $350–$400 million worth of buybacks in 2014. However, we remain concerned about proper implementation of the program as the third-quarter 2014 cash flow statement indicates a weak cash flow position. Moreover, the balance sheet states that cash and cash equivalents have declined 35.3% from that of year-end 2013.
Thus, although an increased share buyback authorization and steady dividend payouts are positives for the company, we are skeptical about execution of the same in the short run due to CNO Financial’s weak financial position.
Moreover, the company could have to resort to external sources like debt issuances to finance the buybacks. CNO Financial is already a highly leveraged company with a debt-to-capital ratio of 17.4% as of Sep 30, 2014, representing a deterioration of 50 basis points from 2013-end. In this situation, further debt issuances could spell trouble.
CNO Financial currently carries a Zacks Rank #1 (Strong Buy). Other stocks in the multiline insurance space that are worth considering include American International Group, Inc. (AIG), The Hartford Financial Services Group, Inc. (HIG) and MGIC Investment Corp. (MTG). All three have a Zacks Rank #2 (Buy).
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