On Jan 15, 2015, we issued an updated research report on CNO Financial Group, Inc. (CNO). We believe that the company’s capital position strength, robust investment portfolio and efficient capital deployments position it well to generate long-term growth. However, lack of any near-term catalyst, decline in share price over the last two months, increased benefits and expenses, and a risky business profile remain matters of concern.
CNO Financial remains focused on improving its capital position. Additionally, the recapitalization plans are reducing interest expenses. Moreover, the company is now monitoring the capital markets to implement another recapitalization of the balance sheet, although the exact timing has not been disclosed. Additionally, the favorable cash flow position, strong organic growth and excess capital generation allow CNO Financial to deploy capital efficiently. The board of directors of CNO Financial authorized a $400 million increase in the share repurchase program in the fourth quarter of 2014. The company has been deploying its excess capital in a way so as to secure attractive internal rate of return (IRR) for its shareholders. This in turn is expected to help the company approach its long-term Return on Equity (ROE) goals.
Moreover, the investment portfolio of CNO Financial remains impressive with strong net realized gains over the years. Given the ample liquidity, management intends to invest in key initiatives that include agent productivity, geographic expansion, product launches, worksite platform distribution as well as enhancing operating efficiencies and customer retention. The company also scores strongly with the credit rating agencies.
On the flip side, CNO Financial has witnessed no estimate revision over the last 60 days owing to the absence of near-term catalysts. In fact, the share price also declined over this period along with the stock delivering negative year-to-date return.
Moreover, benefits and expenses have been increasing over the past few years. Rising operating expenses raise concern and need to be checked to avoid an adverse impact on margins. Additionally, CNO Financial continues to face underwriting and pricing challenges in the long-term care business. The current low interest rate environment, which is generating spread compression, also continues to put pressure on the bottom line. Meanwhile, the company has a risky business profile with significant direct corporate obligations. Moreover, the company requires significant cash each year to fund its operations and repay debt. High financial leverage increases financial risks and may also make additional borrowing costly in the future.
CNO Financial currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the multiline insurance space include MGIC Investment Corp. (MTG), Assured Guaranty Ltd. (AGO) and Cigna Corp. (CI). While MGIC Investment sports a Zacks Rank #1 (Strong Buy), Assured Guaranty and Cigna have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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