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Shares of CNO Financial Group Inc. rose marginally (0.2%) after the company approved an increase in its securities repurchase program and provided its 2013–14 guidance and long-term outlook.

In an effort to boost shareholder value, the board of directors of CNO Financial approved a $300 million increase in the company’s existing securities buyback program, under which it had $128 million left for repurchases. Additionally, management provided its expectations for the upcoming years.

Full-Year 2013 Guidance

CNO Financial stated that it expects securities repurchases for full-year 2013 to be around $250 million. With the company repurchasing securities worth $221.6 million in the first nine months of 2013 and its strong financial position, we believe that this target is quite achievable.

2014 Guidance

CNO Financial expects overall sales to increase by 6%–8% in 2014. The Bankers Life Segment is expected to generate 6%–8% sales growth while the Washington National segment is expected to generate 7%–9% sales growth. Colonial Penn is expected to generate sales growth of 6% – 9%.

Collected premiums are expected to increase by 4% to 6% in the Bankers Life Segment. We note that premium collections deteriorated for many years till 2010, remained flat in 2011 and showed some improvement in 2012. Hence, we are cautious about the outlook as low new money interest rates might weigh on the sale of annuities. Premium collections for Washington National are projected to rise by 5%–7%. Collected premiums at Colonial Penn are expected to increase by 7%–9%.

CNO Financial is set to focus on advanced life sales training and digital marketing strategies in the Bankers Life segment. Additionally, worksite distribution that has increased so far in Washington National remains the key area of focus for the segment, thereby making the targeted sales growth achievable. However, we remain cautious on Colonial Penn’s 2014 guidance as elevated levels of marketing expenses are likely to weigh on margins.

The company remains keen to invest $45 to $55 million in key initiatives in 2014 that include agent productivity, geographic expansion, product launches, worksite platform distribution, enhancing operating efficiencies and customer experience. Further, the company targets securities repurchases in the range of $225–$300 million for 2014.

Debt-to-capital ratio is expected to be around 16% in 2014, improving from 17.3% in the first nine months of 2013. With the debt repayments undertaken by the company so far in 2013, we consider this to be an achievable target.
 
Long-term Outlook

For 2015 and 2016, overall sales are expected to increase in the range of 8% to 10%.

Operating return on equity (ROE) is expected to be around 9% by the end of 2015 and going into 2016. CNO Financial has been deploying its excess capital in order to secure an attractive internal rate of return (IRR) for its shareholders. This in turn is expected to help the company approach its long-term ROE goals.

Our Take

CNO Financial is looking to boost long-term shareholder value. As a result, the company is investing in profitable ventures to spur growth, enhance back-office operations to deliver enhanced customer experience and deploy capital efficiently. We believe these efforts should help CNO Financial to come up with a better operating performance and hence boost earnings going forward. The Zacks Consensus Estimate for 2013 is currently $1.13 per share, representing a 63.48% improvement from the year-ago period. The Zacks Consensus Estimate for full-year 2014 represents a year-over-year improvement of 9.2% to $1.23 per share.

CNO Financial currently carries a Zacks Rank #1 (Strong Buy). Other players in the insurance industry, which look attractive at current levels, include Kemper Corporation , Old Republic International Corporation and Prudential plc . All these stocks carry the same Zacks Rank as CNO Financial.
 

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