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Analyst: CNO Financial Is Stuck Dealing With A 'Problematic Product Class'

Ezra Schwarzbaum

With several years of lackluster growth behind it, investors should no longer be surprised by disappointing performance from CNO Financial Group Inc (NYSE: CNO), according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Nigel Dally upgraded CNO from Underweight to Equal-Weight, but cut his price target from $23 to $22.

The Thesis

CNO Financial stock is down 18.4 percent this year and is underperforming its peer by 10 percent, bringing the price to a level reflective of Dally’s valuation.

Dally’s concerns are persistent though. In particular, too much exposure to long-term care insurance (a "problematic product class") prevent including a consolidation premium into the valuation.

“We do not expect the company to be successful in its plan to reduce long-term care exposure by 50 percent over the next 5 years,” said Dally in a note.

On a more positive note, the risk of large charges has been limited by a smaller number of lifetime guarantees and an aging average age of its block.

The company also has a strong free cash flow, which will enable management to drive “reasonable EPS growth” despite struggling sales.

The analyst’s bull and bear case scenarios for the stock are $29 and $15, respectively. Both of which will be driven in part by risks associated with long-term care.

Price Action

Shares of CNO traded around $20.31 Tursday afternoon.

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Latest Ratings for CNO

Date Firm Action From To
May 2018 Morgan Stanley Upgrades Underweight Equal-Weight
Mar 2018 William Blair Initiates Coverage On Outperform
Oct 2017 Goldman Sachs Initiates Coverage On Neutral

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