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Lincoln National (LNC) Down 7.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Lincoln National (LNC - Free Report) . Shares have lost about 7.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lincoln National due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lincoln National Q3 Earnings Miss Estimates, Up Y/Y

Lincoln National reported third-quarter 2021 adjusted earnings of $1.62 per share, which missed the Zacks Consensus Estimate by 36%. However, the bottom line compared favorably with the prior-year quarter’s loss of 72 cents per share.

The company’s quarterly results benefited from growing sales, pricing discipline, cost-curbing efforts and share buybacks. The upside, however, was partly offset by escalated COVID-linked claims.

Adjusted operating revenues improved 8.7% year over year to $5.2 billion in the third quarter on account of solid contributions by all the four segments of the company — Annuities, Retirement Plan Services, Life Insurance and Group Protection. The top line beat the consensus mark by 6.7%.

Total expenses of $4.9 billion declined 0.6% year over year primarily due to lower costs related to benefits.

Segmental Performance

The Annuities segment’s operating income soared 72% year over year to $338 million in the third quarter, courtesy of solid equity market performance paving the way for increased account values. Operating revenues advanced 12.5% year over year to $1.3 billion. Total annuity deposits increased 7% year over year to $2.7 billion.

The Retirement Plan Services segment reported operating income of $60 million, which climbed 20% year over year. The upside can be attributed to increased account values stemming from robust equity market performance, strong returns from the company’s alternative investment portfolio and consistent expense efficiency. Operating revenues of $328 million rose 5.5% year over year. Total deposits of $2.4 billion inched up 2% year over year in the quarter under review.

Operating income in the Life Insurance segment amounted to $93 million, against the prior-year quarter’s loss from operations of $311 million. The substantial growth was supported by solid returns stemming from the company’s alternative investment portfolio. Operating revenues improved 9.3% year over year to $2.3 billion. Total Life Insurance sales, however, declined 10.8% year over year to $166 million in the third quarter.

The Group Protection segment incurred a loss from operations of $32 million, versus the prior-year quarter’s income from operations of $6 million. Results were hurt by elevated mortality impacts stemming from the pandemic. Operating revenues of $1.2 billion grew 5% year over year. Total sales dipped 2% year over year to $48 million in the quarter under review.

Financial Update (as of Sep 30, 2021)

The company exited the third quarter with cash and invested cash of $2.6 billion, which inched up 0.7% year over year. Total assets of $377.1 billion increased 8.4% year over year.

Long-term debt during the quarter amounted to $6.3 billion, down 5.8% year over year. Shareholders’ equity declined 1.8% year over year to $21.2 billion.

Book value per share, excluding accumulated other comprehensive income (AOCI), increased 8.2% year over year to $76.96.

Adjusted operating return on equity (ROE) excluding AOCI, came in at 8.6%, against the year-ago quarter’s negative figure of 3.9%.

Share Repurchase Update

The company bought back shares worth $200 million in the third quarter. Via an accelerated share buyback program, the company recently started incremental repurchases linked with its block transaction.

Dividend Hike Announced

Concurrently, the company’s board of directors approved a 7% increase in the quarterly dividend as well. The new dividend of 45 cents per share, compared to the prior payout of 42 cents, will be paid on Feb 1, 2022 to shareholders of record as on Jan 10, 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.49% due to these changes.

VGM Scores

Currently, Lincoln National has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lincoln National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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