On Jan 3, Zacks Investment Research upgraded CNO Financial Group, Inc. (CNO) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
CNO Financial has been witnessing rising earnings estimates on the back of its strong last reported quarter’s results, which included a 22.2% positive earnings surprise as well as an additional securities repurchase authorization, financial guidance and long-term outlook. Moreover, this multiline insurer has delivered positive earnings surprises in 3 out of the last 4 quarters with an average beat of 15.4%.
Further, strong capital generation supports CNO Financial’s plans to undertake strategic investments and focus on profit generation.
CNO Financial expects overall sales to increase by 6%–8% in 2014. The Bankers Life Segment is expected to generate 6%–8% sales growth while the Washington National segment is expected to generate 7%–9% sales growth. Colonial Penn is expected to generate sales growth of 6%–9%.
The company is keen to invest $45 to $55 million in key initiatives in 2014 that include agent productivity, geographic expansion, product launches, worksite platform distribution, enhancing operating efficiencies and customer experience. Further, the company targets securities repurchases in the range of $225–$300 million for 2014.
In addition, CNO Financial expects to spend around $250 million on the repurchase of securities in 2013, and $225 to $300 million in 2014. We expect efficient capital deployment to consistently cushion future buybacks and help CNO Financial achieve its long-term return on equity (:ROE) goal of 9% by 2015. The company also estimates 20% dividend payout by 2015.
For 2015 and 2016, overall sales are expected to increase in the range of 8% to 10%.
Operating return on equity (:ROE) is expected to be around 9% by the end of 2015 and early 2016. CNO Financial has been deploying its excess capital in order to secure an attractive internal rate of return (IRR) for its shareholders. This in turn is expected to help the company approach its long-term ROE goals.
The Zacks Consensus Estimate for 2013 increased 1.8% to $1.13 per share over the last 60 days. The same for 2014 inched up 0.8% to $1.24 as well over the same period. These estimates translate to a year-over-year increase of 63.7% and 9.9% for 2013 and 2014, respectively.
Other Stocks to Consider
Other multi-line insurers worth considering are Prudential plc (PUK), Cigna Corp. (ORI) and Kemper Corporation (KMPR). While Cigna Corp. and Kemper Corporation carry a Zacks Rank #2 (Buy), Prudential plc carries the same Zacks rank as CNO Financial.