Torchmark Corporation TMK has been displaying a substantial uptick in premium revenues, fueled by the increasing premiums at its Life and Health Insurance businesses. This, in turn, should continue to drive its earnings.
The life insurer’s most important distribution channel — American Income Exclusive Agency — has been witnessing higher net sales, driven by an increased agent count. The company projects life sales to grow in the 4-8% range. Further, producing agent count, which is estimated to increase in the 2-4% band during 2019, is likely to lead to higher premiums.
The company’s Global Life operates in a relatively non-competitive market and focuses on expanding its margins rather than boosting sales or sales levels or the margins as a percentage of premiums. This effort is yielding results. Torchmark anticipates the underwriting margin to range between 3% and 5% for 2019.
The insurer has been witnessing an improved investment income over the past few years on the back of a gradual rise in interest rates and a decline in the negative impact of the lengthy delays in receiving Part D reimbursements. This momentum should continue on the back of a benign interest rate environment and higher new money rates. This year, the company forecasts a rough 5% rise in excess investment income and the same is likely to grow about 9% on a per share basis.
A robust capital position supports the company to engage in shareholder-friendly activities, raising investors’ optimism on the stock. The company expects to generate free cash flow of $350-$375 million in 2019, providing a cushion to its effective capital deployment.
Shares of this Zacks Rank #2 (Buy) life insurer have gained 9.8% year to date, underperforming the industry’s rally of 15.6%. However, we expect the aforementioned upsides to push the stock up in the near term.
The consensus mark for current-year earnings per share is pegged at $6.61, representing a year-over-year increase of nearly 7.8% on 3.4% improvement in revenues of $4.5 billion. The company's long-term growth stands at 7.5%.
Notably, Torchmark has a favorable Value Score of B. Back-tested results have shown that stocks with an impressive Value Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 become lucrative investment bets.
Other Stocks to Consider
Investors interested in other top-ranked stocks from the insurance industry can also consider Cincinnati Financial Corporation CINF, Hallmark Financial Services, Inc. HALL and Berkshire Hathaway Inc. BRK.B, each sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cincinnati Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in three of the trailing four quarters, the average earnings surprise being 18.08%.
Hallmark Financial underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States. The company surpassed estimates in all the preceding four quarters, the average being 91.28%.
Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. The company exceeded estimates in three of the previous four quarters, the average beat being 4.31%.
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