Lincoln National Corp. LNC looks well poised for growth given its strong operating environment marked by the recent impressive fourth-quarter earnings.
The stock has witnessed upward movement in 2020 and 2021 earnings estimates of 0.6% and 0.5%, respectively, over the past 30 days.
Results showed sales improvement with higher contribution across all the operating segments. Better underwriting margins in Group Protection and improvement in mortality in the Life business quelled investors’ concern about the company’s soft performance in the recent past.
The company’s growth strategies, which included introduction of new products and expansion of distribution channel, positively impacted fourth-quarter results.
Lincoln National has also worked actively to shift its sales mix toward shorter-duration products, which are less sensitive to interest rates, in order to mitigate interest rate risk.
In Annuities, the company’s efforts to broaden product portfolio and participate in more segments of market place improved sales by 17% in 2019. The fourth quarter marked positive net flows for the fifth consecutive quarter, including in both variable annuities (VA) and fixed annuities.
Full-year 2019 net flows were positive for the first time since 2015. Moreover, the company’s annuities business is composed uniformly of VAs with living benefit guarantees, VAs without living benefit guarantees and fixed annuities, each representing approximately one-third of total annuity sales. In 2020, the company expects to further shift to VAs without guarantees, in order to reduce its exposure to interest rate volatility.
In Retirement Plan Services, the company enjoys a competitive advantage in its target markets as a result of its high-touch, high-tech, digitally-focused service model. This model distinguishes the company from peers thus enabling it to attract new customers, and drive higher participation and contribution rates, resulting in strong retention and sales growth.
In Life Insurance business, the company witnessed sales growth in 2019, driven by product actions taken earlier in the year.
In the Group Protection business, sales increased on the back of the recently acquired Liberty Mutual's group benefits business, increased scale, broader distribution access and expanded capabilities.
Moreover, the stock has a strong capital position, which allows it to reinvest in business and return capital to shareholders by way of share buyback and dividend payments.
However, the company is exposed to fluctuation in profitability of its fixed products because of a decline in interest rates. Also, its rising expenses have surpassed revenue growth for the past many quarters
The company’s high debt position coupled with a reduced interest payment capability raises financial risk.
Nevertheless, these headwinds are outweighed by the company’s tailwinds.
The stock carries a Zacks Rank #1 (Strong Buy). Shares of the company have declined 1.5% in a year’s time against the industryy’s growth of 7.8%.
The decline in share price gives an attractive entry point to buy the stock. Its valuation also looks attractive given its price-to-book ratio of 0.62X, which is lower than the industry ’’s average of 1.75X.
A few other top-ranked stocks in the same space are Primerica, Inc. PRI, American Equity Investment Life Holding Company AEL and Brighthouse Financial, Inc. BHF. While Primerica and American Equity carry the same Zacks Rank as Lincoln National, Brighthouse Financial holds a Zacks Rank #2 (Buy)
You can see the complete list of today’s Zacks #1 Rank stocks here.
Primerica, American Equity Investment and Brighthouse Financial have surpassed their estimates in the last reported quarter by 33.01%, 4.72% and 5.13%, respectively.
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Lincoln National Corporation (LNC) : Free Stock Analysis Report
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