Lincoln National Corp. LNC is scheduled to report fourth-quarter results on Jan 31, after market close.
We expect to see an increase in total annuity sales, driven by product enhancements that have been well received in the marketplace. The company has gained market share in 2017, benefiting from products that provide more investment choices and flexibility, along with fee-based compensation options. New product launches (Max 6 Select, a living benefit rider, introduced late in the second quarter, has led to increased sales and is continuing to gain traction) and upgrades to their existing ones, will further aid annuity sales. The Zacks Consensus Estimate for income from operation for the segment is $264 million, which reflects year-over-year growth of 9.1%.
Other Developments in Q4
Increased Top Line From Life Insurance Unit: Lincoln National’s life insurance business is expected to see top-line growth from a broad product portfolio and an industry-leading distribution network. The company has changed in its sales mix to fight the low interest rate environment. Its strategic focus is to decrease the portion of sales from products with long-term guarantees and increase the share of earnings coming from the mortality and morbidity business lines.
Higher Contribution in Group Protection Unit: The company’s Group Protection segment that was challenged in the recent past is now recovering. Sales in 2016 were up nearly 18% and 14% in the first nine months of 2017. This strong sales growth indicates the resilience of its distribution channel.
The company’s pricing remains disciplined and its outlook for sales growth is aligned with its long-term target of mid single-digit increases. We expect sales growth and improving persistency to contribute to fourth-quarter results. The Zacks Consensus Estimate for income from operation for the segment is $26 million, which reflects year-over-year growth of 62.5%.
Strong Performance in Retirement Plan Service: This segment is expected to show growth in deposits, net flows and earnings. This will be driven by higher sales growth from digital innovations and product enhancements, that are focused on simple and transparent pricing, improved customer service and strong retention.
Increased Expenses: The company has undertaken digital initiatives to improve the customer experience. These efforts will result in significant cost savings over time as well as potential revenue enhancements, but will cause the company to incur digitization expense of roughly $10 million a quarter in 2017.
Balance Sheet Strength and Capital Management: Its disciplined capital management by way of share buyback will drive the bottom line. Lincoln National’s balance sheet strength and solid capital generation, which enables it to buy back shares, will provide an extra support to the bottom line.
Earnings Surprise History
The company boasts an attractive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of trailing four quarters with an average beat of 9.83%.
Here is What Our Quantitative Model Predicts:
Our proven model does not conclusively show that Lincoln National is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
Zacks ESP: Lincoln National has an Earning ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Lincoln National carries a Zacks Rank #2, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. The company’s 0.00% ESP thus leaves the case inconclusive.
We caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Worth Considering
Here are some companies worth considering as our model shows that these possess the right combination of elements to beat estimates this quarter:
Amerisafe Inc. AMSF will likely report fourth-quarter 2017 earnings results on Feb 28. The company has an Earnings ESP of +1.61% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Unum Group UNM has an Earnings ESP of +0.83% with a Zacks Rank of 2. The company is expected to report fourth-quarter earnings results on Jan 31.
Trupanion, Inc. TRUP as an Earnings ESP of +100%. This Zacks #2 Ranked company is expected to report fourth-quarter earnings results on Feb 13.
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