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CNO (CNO) Down 3.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CNO Financial (CNO). Shares have lost about 3.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CNO due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

CNO Financial Q4 Earnings Lag Estimates, Fall Y/Y

CNO Financial reported fourth-quarter 2018 adjusted earnings per share of 36 cents, missing the Zacks Consensus Estimate by 32%. Also, the bottom line declined 41% year over year, mainly due to lower revenues. This downside was also on account of the unfavorable impact of $14.4 million, related to change in the value of investments, which backs the company-owned life insurance and adverse financial markets.

In the quarter under review, CNO Financial’s total revenues declined 28.6% year over year to $788 million, missing the Zacks Consensus Estimate by 20.1%, mainly due to lower insurance policy income and net investment income.

Quarterly Operational Update

Total collected premiums were $987.3 million, up 5% from the prior-year quarter’s level, mainly driven by Bankers Life segment.

New annualized premiums for life and health products amounted to $89.6 million, up 5% from the year-ago period.

First-year collected premiums totaled $435.3 million, up 22% from the year-earlier quarter’s tally, primarily banking on the contribution by Bankers Life segment.

Quarterly Segment Update

Bankers Life

Total collected premiums were $732.1 million, up 12.4% year over year, aided by annuity.

New annualized premiums for life and health products decreased 3% year over year to $42.2 million.

Washington National

Total collected premiums of $176.3 million were up 4.6% year over year.

New Annualized premiums from life and health products were $30.1 million, up 11.1% from the year-ago quarter’s figure.

Pre-tax operating earnings surged 35% year over year, reflecting higher margins on the supplemental health block and a favorable impact of comprehensive annual actuarial review of assumptions.

Colonial Penn

Total collected premiums were $75.2 million, up 4.4% year over year.

New annualized premiums were $17.3 million, up 16.9% from the amount recorded in the comparable quarter last year.

The pre-tax earnings were $4.8 million, lower by 18.6% from the level in the year-ago period.

Long-Term Care in Run-Off

Total collected premiums were $3.7 million, down 92.5% year over year.

The long-term care business was recaptured in September 2016 and the segment recognized pre-tax operating earnings of $0.3 million in the quarter under review, down 97.2% year over year.

The company expects this segment to report normalized earnings before net realized investment gains (losses) of approximately breakeven over the long term.  However, this segment’s quarterly results can be volatile.

Corporate Operations

The segment includes performance of the investment advisory subsidiary and corporate expenses.

Pre-tax loss of $29.7 million in the fourth quarter was wider than $3.3 million loss incurred in the year-ago quarter.

Deteriorating Financial Position

Unrestricted cash and investments held by CNO Financial’s holding company were $220 million as of Dec 31, 2018, down 44.5% from the level at 2017 end.

Debt-to-capital ratio was 21.4% as of Dec 31, 2018 compared with 15.9% at the end of 2017.

Securities Repurchase and Divided Update

During the fourth quarter, the company bought back shares worth $40.4 million.

Dividends paid on common stock totaled $16.4 million in the same period.

Full-Year Highlights

For the full year, total collected premiums summed $3.8 billion, up 3% from 2017’s figure.

First-year collected premiums came in at $1.5 billion, up 8% year over year.

Net operating income per share is $1.83 in 2018, up 4.6% year over year.

2019 Guidance

For Bankers Life, long-term care interest-adjusted benefit ratio is expected in the band of 74-79%.

For Washington International, supplemental health interest-adjusted benefit ratio is projected in the 55-58% range.

Colonnial Penn is anticipated to deliver earnings of $12-$20 million. However, this segment is projected to incur a loss of $1-$3 million in first-quarter 2019.


How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, CNO has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.


CNO has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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