We are reiterating Neutral recommendation on Torchmark Corp. ( TMK). While we expect the company to perform favorably over the long term, near-term headwinds such as low interest rates and the underperforming Liberty National distribution agency keep us concerned.
We are optimistic regarding Torchmark’s acquisition of privately held supplemental health insurer, Family Heritage Life Insurance Company of America, which was immediately accretive to the company’s earnings.
Torchmark operates its business via its subsidiaries – Liberty National Life, American Income Life Insurance, United Investors Life Insurance, United American Insurance, as well as Globe Life and Accident Insurance.
American Income is Torchmark’s most profitable distribution system and has grown consistently over the past several years. In the last 10 years, the number of producing agents at American Income have grown considerably, leading to an increase in net sales.
Another distribution channel, Globe Life, which operates in a relatively non-competitive market, enjoys advantages such as an experienced workforce and better cost-control. The direct response operations at Globe Life has also shown consistent growth over the past several years.
Torchmark has also undertaken restructuring efforts in an effort to do away with non-core businesses that will strengthen its capital and at the same time allow it to focus on core operations.
However, the underperforming Liberty National overshadows these positives.
Though growth initiatives have been undertaken, hindrances to growth remain. In addition, a low interest rate environment remains a headwind for Torchmark. Insurer Manulife Financial Corp. ( MFC) also continues to suffer from low interest rates.
Nevertheless, this Zacks Rank #2 (Buy) insurer is maintaining a strong capital position.