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Why is Hold Strategy Appropriate for CNO Financial (CNO) Now?

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CNO Financial Group, Inc. (CNO - Free Report) has been in investors’ good books on the back of healthy revenue stream, decreasing expenditure and strong financial strength.

The company is well-poised for progress, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Now let’s see what makes the company an investor favorite.

CNO Financial has been witnessing growing revenues over the past several years. This upside was backed by the company’s higher premiums, net investment income and a sturdy balance sheet. Although the metric dipped to some extent in the first nine months of 2019, analysts expect this trend to continue on the back of the company’s solid fundamentals.

This industry player’s Washington National business has been contributing well since 2011. In 2018, total premiums from this segment grew 4.6% year over year. This was mainly owing to several growth initiatives introduced in the past couple of years, such as portfolio diversification and a geographic expansion program. We expect this momentum to continue, riding on the company’s key growth endeavors.

CNO Financial has been undertaking measures to curb its overall costs. In the first nine months of 2019, the metric declined 27.5% year over year. The company will pursue further strategic actions to lower costs and enhance its earnings profile. On the back of its constant efforts, we expect the company’s expenses to fall.

The company also invested in technology to boost its agent productivity plus sales and advertising. This move will in turn, improve online customer experience and ramp up productivity. With added technology, CNO Financial can now easily access employer partners, which was earlier impossible due to dearth of a sophisticated benefits platform.

CNO Financial deepens its focus on bettering its capital and debt position. It has also been hiking its quarterly dividend since 2013, which should retain investor confidence in the stock. Additionally, frequently taken up share repurchase programs have been a major capital deployment strategy for the company. It witnessed a steady cash flow for the past several years as well. Moreover, its balance sheet strength, which assists in efficient capital management, should attract investors’ attention.

However, the company’s high leverage continues to be bothersome. Its debt-to-equity ratio that has been rising over the last few quarters now stands at 57.8%, worse than the industry average of 41.6%. In the first nine months of 2019, interest expenses rose 6.4% year over year. This raises financial risk in turn.

For 2020, the Zacks Consensus Estimate for earnings per share stands at $2.10 on $3.77 billion revenues, implying a respective 16% and 0.7% increase from the prior-year reported numbers.

Shares of this Zacks Rank #3 (Hold) company have gained 3.3% in a year's time, underperforming its industry's rise of 8.5%.
 


 

Stocks to Consider

Investors interested in the insurance industry might look into some better-ranked stocks like Cigna Corporation (CI - Free Report) , MetLife, Inc. (MET - Free Report) and MGIC Investment Corporation (MTG - 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.

Cigna provides insurance and related products and services in the United States and internationally. For the trailing four quarters, the company’s earnings beat is 5.2%, on average.

MetLife engages in insurance, annuities, employee benefits and asset management businesses. The company has a positive surprise of 3.3%, on average, for the preceding four quarters.

MGIC Investment Corporation offers private mortgage insurance, other mortgage credit risk management solutions, and ancillary services to lenders and government sponsored entities in the United States. The company came up with a positive surprise of 12.6%, on average, for the previous four quarters.

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