Globe Life Inc. GL is well-poised to gain from higher premiums, net investment income and strong segmental performances.
The stock has a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.
Globe Life’s return on capital was 9.1% in the trailing 12-month period, higher than the industry average of 7.6%. Return on capital is a profitability measure that identifies a company’s efficiency in utilizing its capital generate profits.
The company has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters while missing in one, the beat being 0.45%, on average.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $6.93 and $7.28, indicating increase of nearly 2.6% and 5%, respectively from the year-ago reported figures.
Factors Driving Globe Life
Globe Life has been witnessing a positive trend in revenues driven by premium growth at its Life Insurance and Health Insurance segments and net investment income. This upside is evident from its four-year CAGR (2015 - 2019) of 4.7%, primarily led by strong segmental results. Notably, the Zacks Consensus Estimate for the company’s 2020 revenues is pegged at $4.61 billion, indicating an increase of 2.3% from the year-ago reported figure.
The company continues to perform well on strong performance of its two revenue components — life premium and health premium. Life premium, which contributes a significant portion to Globe Life’s revenues, moved up 4% year over year in the first quarter of 2020. The upside can be attributed to strong performance at it important distribution channels — American Income Exclusive Agency, Direct Response, and Liberty National.
The company also witnessed a substantial improvement in health premiums. In the first quarter of 2020, health premiums increased 5.1% from the prior year. The improvement mainly came on the back of strong performance in Globe Life’s United American Independent and Family Heritage distribution channels.
Moreover, net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several years. The metric witnessed four-year CAGR (2015-2019) of 4.1%. Despite the current low interest rate environment, higher yields on fixed maturities will continue to drive net investment income.
Further, the company’s debt level has remained stable over the past few years. Its cash and cash equivalents increased at a five-year CAGR (2015-2020) of 25.6%. This suggests that the company has sufficient cash reserves to meet its short-term debt obligations. Also, long-term debt to capital of 21.7% compares favorably with the industry’s measure of 64.5%. Globe Life’s times interest earned, a measure to identify the company ability to service debt, of 11.8X is good when compared with the industry’s average of 5.2X, implying that its earnings are sufficient to cover interest obligations.
However, the company has been witnessing high costs due to rise in policyholder benefits, higher amortization of deferred acquisition costs, commissions, premium taxes, and non-deferred acquisition costs and other operating expense. Such costs tend to weigh on the company’s margins. Notably, net margin contracted 1870 basis points over the past three years (2017-2020).
Shares of this Zacks Rank #3 (Hold) company have lost 18.9% in a year’s time, compared with the industry’s decline of 21.5%. The company’s policy to ramp up its growth profile and capital position should help drive shares higher.
Stocks to Consider
Some better-ranked stocks from the finance sector include Jefferies Financial Group Inc. JEF, Virtu Financial, Inc. VIRT and Equifax Inc. EFX. While Jefferies Financial and Virtu Financial sport a Zacks Rank #1 (Strong Buy), Equifax carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Jefferies Financial is a diversified financial services company, engaged in investment banking and capital markets, asset management, and direct investing businesses in the Americas, Europe, the Middle East, Africa, and Asia. It surpassed estimates in three of the last four quarters, with the average positive surprise being 93.86%.
Virtu Financial provides market making and liquidity services through its proprietary, multi-asset, and multi-currency technology platform to the financial markets worldwide. The company reported positive surprise of 35.76% in the last reported quarter.
Equifax provides information solutions and human resources business process outsourcing services for businesses, governments and consumers. It surpassed estimates in each of the last four quarters, with the average positive surprise being 4.23%.
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