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On Apr 22, we reiterated our Neutral recommendation on Lincoln National Corp. (LNC - Analyst Report) based on its enhanced revenue on the back of improved distribution expansion and pricing. However, higher expenses and lower operating cash flow raise caution for this Zacks Rank #3 (Hold) stock.

Why the Retention?

Estimates for this life insurer witnessed minor corrections since the company reported its fourth-quarter 2012 results on Feb 6. Lincoln’s fourth-quarter earnings of $1.10 per share and total revenue of $2.96 billion topped the Zacks Consensus Estimate of $1.06 and $2.87 billion, respectively. Operating earnings and revenue also came in higher than the prior-year quarter.

Results were primarily driven by a diversified product portfolio as well as improved sales, retention and pricing that led to enhanced deposits, net inflows, ending account balances and book value. Improved financial leverage also enhances capitalization, mitigates balance sheet risks and provides liquidity cushion for long-term investment.

However, higher benefits and commission expenses, economic volatility, competitive pressures and a low interest rate environment have been restricting desired investment income growth. Going ahead, the company is poised to consistently return incremental capital to its shareholders, as reflected by the consistent dividend hike, strong capital leverage and sound ratings.

Overall, Lincoln delivered positive earnings surprises in all of the last 4 quarters with an average beat of 7.9%. Following the release of the fourth-quarter results, the Zacks Consensus Estimate for 2013 inched up 1.8% to $4.55 per share in the last 60 days. Further, the Zacks Consensus Estimate for 2014 edged up 2.1% to $4.93 per share in the last 60 days.

Other Insurers That Warrant a Look

While Lincoln tends to stay in the neutral lane in the near term, other stocks in the insurance sector that are outperforming include Montpelier Re Ltd. (MRH - Analyst Report), EMC Insurance Group Inc. (EMCI - Snapshot Report) and Hilltop Holdings Inc. (HTH - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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