A month has gone by since the last earnings report for Torchmark (TMK). Shares have lost about 1.5% 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 the most recent earnings report in order to get a better handle on the important drivers.
Torchmark Q1 Earnings and Revenues Beat Estimates
Torchmark's first-quarter 2019 net operating income of $1.64 per share beat the Zacks Consensus Estimate by 3.1%. The bottom line improved 10.1% 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 gain on investments of 1 cent, net income increased 10.7% year over year to $1.65 per share
Behind the Headlines
Torchmark reported total premium revenues of $891 million, up 5% year over year. This upside was primarily driven by higher premiums from Life and Health Insurance businesses.
Net investment income increased 4% year over year to $226.7 million.
The company’s operating revenues of $1.1 billion grew 4.7% 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. The top line beat the Zacks Consensus Estimate by 0.8%.
Excess investment income, a measure of profitability, increased 6% year over year to $65.6 million.
Torchmark’s total insurance underwriting income grew 9% year over year to $174.8 million. Improvement in Life and Health Insurance underwriting margins resulted in this uptrend. However, higher administrative expenses partially offset this upside.
Administrative expenses increased 7% year over year to $59.2 million.
Total benefits and expenses rose 3.8% year over year to $891 million.
Premium revenues at Torchmark’s Life Insurance operations increased 4% year over year to $624.3 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 grew 3% and LNL Agency rose 2%. Life Insurance underwriting income improved 10% year over year to $169.8 million. Net sales at the Life Insurance segment were 4% higher on a year-over-year basis.
Health insurance premium revenues rose 6% year over year to $266.7 million. Underwriting income of $61.5 million increased 6% year over year. Net health sales grew 2% year over year.
Annuity underwriting margins declined 7.7% year over year to $2.4 million.
Shareholders’ equity as of Mar 31, 2019 increased 3.8% year over year to $6 billion.
Torchmark reported book value per share (excluding net unrealized gains on fixed maturities) of $45.45, up 11% year over year.
As of Mar 31, 2019, operating return on equity (excluding net unrealized gains on fixed maturities) was 14.7%, up 10 basis points year over year.
Share Repurchase and Dividend Update
In the first quarter, Torchmark repurchased 1.1 million shares for a total cost of $89 million.
For 2019, Torchmark raised its net operating income guidance range to $6.61 to $6.75 per share from the earlier projection of $6.60 to $6.70.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Torchmark has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Torchmark has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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