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Here's Why Hold Strategy is Apt for Primerica (PRI) Stock

Zacks Equity Research
·4 mins read

Primerica PRI is well-poised for growth, riding on compelling product portfolio, strong market presence and solid capital position. The company currently has an impressive VGM Score of B.

The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 4.5% and 2.7%, respectively in the past 30 days, reflecting analysts’ optimism.  

The company has been effectively improving its net operating return on adjusted equity. Return on equity of 23.1% in the trailing 12 months was better than the industry average of 11.8%, reflecting the company’s efficiency in utilizing shareholders’ funds.

The company has a stellar history of delivering earnings surprise in the last nine reported quarters.

Primerica noted middle-income households in the United Stated need about $12 trillion of life insurance to be properly protected. Being the second largest issuer of term life insurance coverage in North America, leveraging its unique distribution model, the company is well positioned to serve middle-income families.

The company also estimates new issued policies to increase between 12% and 18% in the second half of the year. Given solid first half sales and expectations of growth in the second half, it estimates adjusted direct premium to grow 10-11% in 2020. However, sales at ISP business is expected to decrease 10-15% in the second half, resulting in full-year sales decline in the low to mid-single digits.

The company noted its mortgage distribution business is beginning to show early signs of success.

The Zacks Consensus Estimate for 2020 is pegged at $9.30 while the same for 2021 is $10.45, indicating year-over-year increase of 10.3% and 12.4%, respectively. Primerica’s earnings per share have increased at a five-year CAGR (2015-2019) of 24%.

Though the company’s debt-to-capital ratio has been deteriorating over the years, its times interest earned, identifying how efficiently the company can service debt has been improving. Times interest earned of 17.5% is higher than the industry average of 14.3%.

The company exited the second quarter with $256 million holding company liquidity and a Primerica Life Insurance Company’s (PLIC) RBC ratio around 400. The company enjoys solid ratings from credit rating agencies.

Given operational excellence and strong capital position, this Zacks Rank #3 (Hold) life insurer has increased its dividend nine times in eight years at a CAGR of 17.5%.  It expects to buy back $250 million worth of shares in 2020.

The company remains focused on generating considerable free cash flow and deploying a significant portion of operating earnings to enhance shareholders value. The company has a track record of total stockholder return consistently outperforming the S&P 500 Index.

Shares of Primerica have gained 4.2% in a year against the industry's decline of 10.2%.

Stocks to Consider

Some better-ranked companies in the insurance industry are Manulife Financial Corp MFC, Sun Life Financial Inc. SLF and The Allstate Corporation ALL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Manulife Financial delivered earnings surprise of 30.23% in the last reported quarter.

Sun Life Financial delivered earnings surprise of 10.98% in the last reported quarter.

Allstate delivered earnings surprise of 25.24% in the last reported quarter.

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