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Analyst Blog

On April 21, 2014, we issued an updated research report on CNO Financial Group, Inc. (CNO - Analyst Report). The company has been seeing an improvement in return on equity (ROE), investment portfolio and cash flow. Alongside, the capital deployment initiatives of the company are also impressive.

ROE of CNO Financial has been improving for quite some time. Notably, in this regard, the company entered into a reinsurance agreement to vend its closed block OCB that has boosted earnings and ROE in 2013. CNO Financial expects ROE to reach around 9% by 2015-end, and the performance in 2013 raises optimism regarding this target achievement. Further, the recapitalization plan of the company has also been successful in reducing interest expenses on corporate debt over the last two years.

The investment portfolio of the company is also robust. Also, the company continued to yield net realized gains in 2013. Management remains keen on investing in key initiatives in 2014 that include agent productivity, geographic expansion, product launches, worksite platform distribution, enhancing operating efficiencies and customer retention.

Moreover, strong operating cash flow of CNO Financial raises optimism on the stock. Furthermore, the divestiture of low-return generating CLIC business (expected by mid-2014) should free up cash to be invested in working capital requirements.

CNO Financial’s strong organic growth and excess capital generation allowed a $300 million hike in its securities repurchase program, which consists of stocks and warrants, in Dec 2013. Higher cash flows also paved way for a 100% hike in dividends in March 2014. The company also expects to reach a dividend payout ratio of 20% by 2015. The company also scores strongly with the credit rating agencies.

This Zacks Rank #3 (Hold) financial services company delivered positive earnings surprises in three of the last four quarters, with a an average beat of 15.87%.

However, on the tepid side, CNO Financial is facing intense pressure from rising benefits and expenses. Given management’s intentions to carry out in acquisitions and increasing business locations, expenses are slated to rise further. Rising operating expenses are worrisome and need to be checked to avoid an adverse impact on margins. CNO Financial also has a substantial level of debt burden that might aggravate the financial risks of the company and make additional borrowing expensive in the future.

Other Stocks to Consider

Some better-ranked stocks in the multiline insurance space include Prudential plc (PUK - Snapshot Report), Ping An Insurance (Group) Company of China, Ltd. and AXA Group (AXAHY). All three stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CNO
Read the Full Research Report on PUK
Read the Full Research Report on AXAHY
Read the Full Research Report on PNGAY


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