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Does a Fall in Lincoln National Make It a Good Bargain?

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Lincoln National Corp.’s LNC favorable operating performance for the past many quarters is backed by its powerful retail franchise, which brings together a comprehensive and expanding product portfolio with distribution breadth.

Though the stock has lost 9% in a year’s time compared with the industry’s decline of 6%, we expect progress on its fundamentals to help it bounce back.

Here are some of the reasons to own the stock:

Expanding Annuities Business: Annuities, which constitute nearly 30% of the company’s revenues, are generating strong sales driven by its strategy of expanding the product portfolio and leveraging distribution strength. Moreover, the improved regulatory environment should also help the business going forward.

Strong Life Insurance Business: Life Insurance business generated nearly 46% of the company’s revenues in 2017. Revenues from this business have been growing consistently since 2009 (only declining 2015). However, the segment’s bottom line has been volatile.

To improve its profitability and shield from long-term claims variability, the company has been making changes in its sales mix to emphasize the sale of Life products without long-term guarantees. This has improved the risk profile of the business.

In Life Insurance, new business returns are strong and upcoming product enhancements will further boost its sales diversification and profitable growth. This segment is thus expected to grow in the coming quarters.

Resurging Group Insurance Business: The company’s Group Protection segment, which was challenged earlier, has been recovering with an improvement in sales in 2016 and 2017. The company recently acquired Liberty Group’s business. This acquisition would position the company as a Group Benefits market leader by enhancing Large Case presence and Disability expertise, complementing current markets with limited sales overlap. Going forward, the company expects this transaction to accelerate the already-strong positive momentum in the Group business.

Axing of Less Profitable Businesses: Alongside investing in profitable businesses, the company has exited non-core and less profitable ones (including asset management, media businesses and those in the U.K.). These strategic initiatives have helped the company to evolve as a much stronger entity over the years.

Attractive Valuation: Moreover, this Zacks Ranked #2 (Buy) stock is significantly undervalued and is currently trading at a forward 12-month price-to-earnings ratio of 7, which compares with the industry P/E ratio of 9.6. Given that the stock is trading at low valuation levels, it provides an attractive investment opportunity. Also, the stock carries an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best opportunities in the value investing space.

Other Stocks to Consider

Other stocks from the insurance industry are GWG Holdings, Inc. GWGH American Equity Investment Life Holding Co. AEL and Athene Holdings Ltd. ATH. While GWG Holdings carries a Zacks Rank #1 (Strong Buy), the other two stocks sport the same Zacks Rank as Lincoln National.

You can see the complete list of today’s Zacks #1 Rank stocks here.

GWG Holdings purchases life insurance policies in the secondary market in the United States. It pulled off an average four-quarter positive surprise of 195.14%.

American Equity Investment provides life insurance products and services in the United States. The company came up with four-quarter average positive surprise of 24.38%.

Athene Holdings is a retirement services company. It delivered an average four-quarter earnings surprise of 19.63%.
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Lincoln National Corporation (LNC) : Free Stock Analysis Report
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