CNO Financial's Huge Expense & Debt Levels Raise Caution
We issued an updated research report on CNO Financial Group, Inc. CNO on Sep 25, 2015.
The company’s is witnessing increased benefits and expenses owing to heavy loss on extinguishment of debt as well as higher operating costs and expenses. Additionally, CNO Financial continues to face underwriting and pricing challenges in the long-term care business.
Moreover, the company has a risky business profile with a significant amount of debt. The company requires substantial amount of cash each year to fund its operations and repay debt. A high level of debt increases financial risk and may also make additional borrowing costly in the future.
In some of the product lines, such as life insurance and fixed annuities, the company faces threats due to its small market share. Most of its competitors have greater market shares, superior financial resources, higher ratings and stronger brand recognition. This might limit business opportunities and affect the company’s profitability, going forward.
Nevertheless, the insurer’s strong financial position, low interest expenses and strong investment portfolio are impressive. Also, strong liquidity enables the company to undertake investments to improve its operations. Ample liquidity makes it possible for management to invest in key initiatives like agent productivity, geographic expansion, product launches and worksite platform distribution.
Additionally, the company completed the recapitalization of its balance sheet in May 2015. This improved its financial flexibility, extended debt maturities, eliminated cash flow sweeps, restricted payment baskets and increased deployable capital. The company expects financial leverage to improve and is thus, seeking further investments.
In terms of segmental performance, the company’s Washington National and Colonial Penn segments continue to witness improvement. Banking on solid execution, CNO Financial expects sales at Washington National to increase 3–5% and that at Colonial Penn to grow 12–15% in 2015. The company also scores strongly with credit rating agencies.
CNO Financial currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the multiline insurance space are Allianz SE AZSEY, Assured Guaranty Ltd. AGO and Old Republic International Corporation ORI. All three stocks sport a Zacks Rank #1 (Strong Buy).
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CNO FINL GRP (CNO): Free Stock Analysis Report
ASSURED GUARNTY (AGO): Free Stock Analysis Report
ALLIANZ AG-ADR (AZSEY): Free Stock Analysis Report
OLD REP INTL (ORI): Free Stock Analysis Report
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