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Here's Why Hold Strategy is Apt for Lincoln National Stock

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Lincoln National Corporation (LNC - Free Report) has been gaining momentum from higher premiums, increased adoption of digital capabilities and enhanced benefit solutions.

The Zacks Consensus Estimate for its 2020 and 2021 earnings per share is pegged at $7.86 and $9.76, respectively, indicating an improvement of 79.5% and 24.1% from the year-ago reported figure.

The stock has seen its third-quarter estimates being revised upward by 2.2% in the past 30 days.

Factors to Note

The life insurer continues to benefit on the back of higher insurance premiums, which have been improving consistently since 2010 except for 2016. As a result, the company’s adjusted operating revenues have witnessed a three-year CAGR of 9%.

The company continues to reprice products by ensuring that capital utilization is made in the best possible way. It is also shifting focus toward non-guaranteed products, which is likely to reduce the company’s risk profile and drive revenues in the days ahead. This is evident from the Zacks Consensus Estimate for its 2020 and 2021 revenues, which are pegged at $17.8 billion and $18.4 billion, respectively, indicating an improvement of 1.3% and 3.3% from the year-ago reported figure.

Moreover, Lincoln National has been making every effort to digitize the life insurance purchase process, which has helped it in transitioning to a virtual sales environment. Increased use of digital tools is of particular importance amid the COVID-19 pandemic, which has reinforced the importance of life insurance policies. Further, the disruption caused by the pandemic is likely to affect sales to a lesser extent due to adoption of the virtual sales environment, where customers can purchase policies within the comfort of their homes.

Furthermore, Lincoln National continues to undertake numerous cost-cutting initiatives that have been benefiting the company’s earnings. Notably, its earnings are witnessing a three-year CAGR of 11%. These efforts have also led to continuous improvement in the company’s expense ratios since 2013.

Enhancement of digital capabilities have enabled Lincoln National to remain on track to reach the target of $90 million to $150 million in annual run-rate savings. The company has been inching closer to its additional expense savings of $100 million in this year, which it intends to utilize to tide over the current crisis scenario.

In fact, Lincoln National has remains well poised for growth by facilitating enhanced benefit solutions for promoting employees’ well-being and satisfaction. In this regard, the life insurer has joined forces with Swiss Life in July for offering global employee benefits solutions to multinational companies spanning across 90 countries and territories. One month prior to that, it had also joined PlanSource Boost program for improving the benefits experience through real-time API integrations.

Lastly, the company boasts of strong cash flows that enables it to undertake prudent shareholder-friendly moves not only via buybacks but also with dividend hikes, which has witnessed a CAGR of 35% since 2010. Its dividend yield, currently being 4.4%, remains higher than industry’s average of 3.4%.

Shares of this Zacks Rank #3 (Hold) life insurer have lost 31.8% in a year compared with the industry’s decline of 5.3%.

However, we remain concerned about lower interest rates resulting from the current crisis period, which are likely to keep the company’s sales under pressure in the near term. Nevertheless, we believe that the company’s strong fundamentals are likely to drive shares in the days ahead.

Stocks to Consider

Some better-ranked stocks in the insurance space include Manulife Financial Corporation (MFC - Free Report) , Sun Life Financial Inc. (SLF - Free Report) and Assurant, Inc. (AIZ - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Manulife, Sun Life and Assurant have a trailing four-quarter earnings surprise of 6.79%, 11.58% and 6%, on average, respectively.

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