We retain our Outperform recommendation on StanCorp Financial Group Inc. (SFG) following the solid second quarter earnings results, which included a 33% positive earnings surprise. The property and casualty insurer carries a Zacks Rank #2 (Buy).
Why the Reiteration?
StanCorp Financial reported second quarter 2013 operating net earnings of $1.34 per share, way ahead of $0.51 earned in the prior-year quarter. The improvement came on the back of a decline in operating expenses, more favorable claims experience in the group long-term disability insurance business, and higher earnings in the company’s Asset Management segment.
StanCorp Financial delivered positive earnings surprise in the previous four quarters with an average beat of 31.5%. The long-term expected earnings growth rate for this stock is 7%.
StanCorp’s Asset Management segment continues to deliver better numbers, benefiting from higher administrative fee revenues and spread margin, stemming from increase in assets under administration and lower operating expenses. An increase in the sales of life-contingent annuity premiums also aided the upside. The segment’s contribution to total revenue increased as well.
Additionally, StanCorp’s investment portfolio continues to perform well with no considerable exposure to high-risk asset classes.
StanCorp enjoys a strong capital position, enabling it to remain focused on enhancing shareholder value.
However, Group insurance premiums continue to witness decline in premium, largely stemming from a low single-digit price increase in group insurance business and stiff competition, which also weighed on new sales and renewals.
StanCorp has also been experiencing rising expenses. Modifications to the post-retirement medical plan, that lowered the operating expenses by $10.3 million or $0.15 per share both in the first and second quarters of 2013, will not recur in the following quarters.
Other Stocks to Consider
Life insurers China Life Insurance Co. Ltd. (LFC), Lincoln National Corporation (LNC) and Symetra Financial Corporation (SYA) shares the same Zacks Rank #2 (Buy) with StanCorp Financial, and are worth considering.
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