Lincoln National Expands Buyback

Zacks

Following a strong first-quarter 2014, the board of Lincoln National Corporation (LNC) has sanctioned an increase in its shares and securities to a total of $1.0 billion. This replaces the previous one approved in Aug 2012, wherein Lincoln National had amplified its repurchase activity by up to $1.0 billion.

Over the last couple of years, Lincoln National has exceeded its buyback target by repurchasing shares worth $575 million in 2011, $492 million in 2012 and $450 million in 2013. While about $150 million shares were bought back in first-quarter 2014, the company had $208 million of securities available for repurchases at the end of Mar 2014.

The latest action will be accretive to earnings per share, thereby retaining investor confidence.  However, the latest authorization is without an expiry period. Management aims to execute it from time to time after evaluating Lincoln National’s capital adequacy, cash flow generation, costs and benefits of alternate uses of capital and market expectations.

Rationale

We believe that Lincoln National’s modest liquidity and financial leverage support its capital deployment activities. The company has also made substantial progress in implementing long-term solutions for reserve financing that align asset-liability duration more closely, thereby reducing refinancing risks. At the same time, it increased the dividend by 33%, 50% and 60% in Nov 2013, 2012 and 2011, respectively, thereby boosting shareholder value.

As well, Lincoln National benefits from a respectable statutory capital, low credit risk, capable management and diverse distribution network. These factors have driven its operating leverage, according to the rating agencies, who rated about 95.6% of the company’s securities portfolio as investment grade, at the end of Mar 2014.

Although intense competition and a low interest rate environment restrict the desired upside in the near-term, we remain optimistic about the company’s prudent capital management and healthy growth outlook going forward.

Lincoln National presently has a Zacks Rank #2 (Buy). Other insurers such as Protective Life Corp. (PL), Sun Life Financial Inc. (SLF) and Prudential Plc (PUK), carrying the same Zacks Rank as Lincoln National, are worth consideration.

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