On May 30, 2014, we issued an updated research report on StanCorp Financial Group Inc. (SFG).
StanCorp Financial delivered operating net earnings of $1.14 per share in the first quarter that missed the Zacks Consensus Estimate by 7.3%. However, it improved 6.5% year over year on the back of favorable claims experienced in Employee Benefits and Individual Disability. Lower net investment income, increased operating expenses and lower Employee Benefits premiums limited the upside.
The Asset Management segment that has been generating an improvement in profits over the last few quarters witnessed a decline due to higher operating expenses and the change in fair value of the hedging assets and liabilities related to the StanCorp’s equity-indexed annuity product. Nonetheless, the results were in line with the StanCorp’s expectation. In addition, the segment’s contribution to top line continues to increase.
By virtue of its strong capital position, this Zack Rank #3 (Hold) life insurer bought back 0.55 million shares worth $35 million (a substantial increase from $9.9 million spent in the year-ago quarter). StanCorp Financial also bought back 47 million of 6.9% subordinated debt from a single investor that in turn will help in saving $3.2 million in interest annually.
Benefit ratio, defined as benefits to policyholders and interest credited as a percentage of premiums, continued to show improvement. The last quarter marked the seventh straight quarter of improving benefit ratio. Management expects Employee Benefits’ benefit ratio between 77% and 79% in 2014. However, with respect to Employee Benefits premiums, StanCorp has been witnessing a decline over the last seven quarters consecutively. Premiums in the last quarter suffered due to lower Employee Benefits sale.
Investment income also witnessed a decline due to lower yields at both fixed maturity securities and commercial mortgage loans. Management envisions investment income to remain depressed through 2014.
Mixed quarterly results prompted a 0.4% decline in the Zacks Consensus Estimate for 2014 as one estimate moved up while another moved down in the last 30 days. However, the expected long-term growth rate for the stock is 6.2%.
Other Stocks to Consider
Some better-ranked life insurers worth considering are Lincoln National Corporation (LNC), Protective Life Corporation (PL) and Sun Life Financial Inc. (SLF). All these carry a Zacks Rank #2 (Buy).