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Torchmark (TMK) Down 0.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Texas Roadhouse (TXRH) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Torchmark (TMK). Shares have lost about 0.4% in that time frame, underperforming the S&P 500.

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

Torchmark Q4 Earnings In Line, Up Y/Y as Premium Rise

Torchmark Corporation fourth-quarter 2018 net operating income of $1.56 per share came in line with the Zacks Consensus Estimate. The bottom line, however, improved 25.8% year over year on the back of higher premiums from the Life and Health segments. Lower share count on continuous buybacks also drove the upside.

Including realized loss on investments of 4 cents, redemption of debt of 8 cents and tax reform adjustment of 1 cent, net income plunged to $1.45 per share from $8.71 per share in the year-ago quarter.

Behind the Headlines

Torchmark reported total premium revenues of $857.16 million, up 4% year over year. This upside was primarily driven by higher premiums from Life and Health Insurance businesses.

Net investment income improved 5% year over year to $224.2 million.

The company’s operating revenues of $1.1 billion grew 4% from the year-ago quarter. This top-line improvement was driven by growth in Life and Health Insurance premiums along with higher net investment income. However, the top line missed the Zacks Consensus Estimate by 0.8%.

Excess investment income, a measure of profitability, increased 7% year over year to $61.7 million.

Torchmark’s total insurance underwriting income grew 5% year over year to $228.6 million. Improvement in Life and Health Insurance underwriting margins resulted in this uptrend. However, higher administrative expenses partially offset this uptick.

Administrative expenses increased 4.7% year over year to $57.4 million.

Total benefits and expenses rose 2.4% year over year to $861 million.

Full Year Highlights

Net operating income of $6.13 per share missed the Zacks Consensus Estimate by a cent and increased 27.2% over 2017.

Operating revenues of $4.3 billion grew 4.2% from the year-ago quarter. However, the top line missed the Zacks Consensus Estimate by 0.1%.

Segment Update

Premium revenues at Torchmark’s Life insurance operations increased 3% year over year to $600.2 million, banking on higher premiums written by distribution channels like American Income Agency, Global Life Direct Response and LNL Agency. While American Income Agency grew 7%, Global Life Direct Response and LNL Agency rose 1% each. Life Insurance underwriting income improved 5% year over year to $167.7 million. Net sales at the life insurance segment were 2% lower on a year-over-year basis.

Health insurance premium revenues rose 5% year over year to $256.9 million while underwriting income of $58.2 million increased 6% year over year. Net health sales grew 9% year over year.

Annuity underwriting margins remained flat year over year at $2.7 million.

Financial Update

Shareholders’ equity as of Dec 31, 2018 increased 13.1% year over year to $5.4 billion.

Torchmark reported book value per share (excluding net unrealized gains on fixed maturities) of $44.32, up 11.4% year over year.

As of Dec 31, 2018, operating return on equity (excluding net unrealized gains on fixed maturities) was 14.6%, up 30 basis points year over year.

Share Repurchase and Dividend Update

In 2018, Torchmark repurchased 4.4 million shares for a total cost of $372 million.

The company announced a dividend of 16 cents per share in the reported quarter, reflecting an increase of 6.7% from the year-ago period.

Guidance

For 2019, Torchmark tightened its net operating income guidance range to $6.50 and $6.70 per share from the earlier projection of $6.45 to $6.75.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Torchmark has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Torchmark has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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