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Analyst Blog

Riding on a steady growth momentum, shares of Lincoln National Corp. (LNC - Analyst Report) hit a new 52-week high of $52.55 on Jan 15. This life insurer’s shares have escalated a whopping 94.9% since the beginning of 2013.

Moreover, shares of Lincoln National jumped about 16% alone after the company reported its third-quarter 2013 results at the end of October last year, with a positive earnings surprise of 8.9%. The encouraging momentum of this Zacks Rank #2 (Buy) stock is fuelled by improved core growth coupled with a strong competitive position.

Yesterday’s closing price represents a robust one-year return of about 88.6% against a return of 25.6% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 1,977.2K.

Earnings Review

On Oct 30, Heartland Payment reported third-quarter operating earnings per share of $1.34, which noticeably surpassed the Zacks Consensus Estimate of $1.23 and the year-ago quarter number of $1.27.

Results reflected sturdy growth in sales of re-priced products and positive net flows along with favorable equity market situation and higher retention. Consolidated account balances increased 13% year over year to $197 billion, whereas net flow surged 76% to $2.3 billion, both reflecting growth across segments and in total revenue. However, return on equity (ROE) and operating cash flows declined given higher investment losses.

Nonetheless, Lincoln National benefits from expanded distribution relationships together with a dynamic business mix. Stable financial leverage also enhances capitalization, mitigates balance sheet risks, aids incremental capital deployment and provides liquidity cushion for long-term investment. This is also reflected by the company’s dividend hike in Nov 2013, boosting investors’ confidence in the stock.

Valuation

Further, Lincoln National appears an undervalued stock. Both on forward price-to-earnings and price-to-book basis, the shares are trading at a discount of about 13% and 5%, respectively, to the peer group average. However, return on equity of 9.3% stood modestly higher than the peer group average, while return on assets were at par at 0.6%. Even estimated long-term earnings growth is pegged at 9.6%, slightly lower than the peer group average of 9.8%.

Some better-ranked insurers that warrant a look are Protective Life Corp. (PL - Analyst Report), Primerica Inc. (PRI - Snapshot Report) and American International Group Inc. (AIG - Analyst Report). All these stocks carry the same Zacks Rank as Lincoln National.

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