Torchmark's Growth Initiatives Impress, High Expenses A Drag

On Jun 3, we issued an updated research report on Torchmark Corporation (NYSE:TMK) .

In the first quarter of 2016, the insurer’s operating earnings beat the Zacks Consensus Estimate driven by higher premiums from both life and health insurance segments. The company’s underwriting income improved as well. The improvement in premiums is primarily attributable to distribution channels – American Income Agency and Direct Response. Although higher administrative expenses might limit bottom-line growth, the company remains committed to improve through its niche market focus and steady operations. Going by the surprise trend, Torchmark delivered positive earnings surprises in two of the last four quarters.

Torchmark has been able to deliver a robust performance on the back of new initiatives in its highly focused market segment. Higher premiums from American Income Exclusive Agency distribution channel have made the company focused on further expanding sales through this channel. To increase agent count and improve efficiency, Torchmark has also introduced several development and training programs for agents and management. The Global Life segment too has been delivering good results with higher premiums as it enjoys a dominant presence in a market with low competition. The company expects the 2012 buyout Family Heritage to start paying off in the current year with higher margins and growth of 2–6%. The company’s efficient capital management supports its initiatives.

Torchmark has been consistent in creating value for shareholders. In alignment with its share buyback program, the company repurchased 1.5 million shares worth $80 million in the first quarter. However, the company’s high administrative expenses and low investment income are headwinds. Performance of Torchmark’s third primary distribution system Liberty National has also been weak. This channel has so far been unable to produce desired results and its growth options remain marginal..

The Zacks Consensus Estimate is currently pegged at $4.44 per share for 2016 and $4.78 for 2017. This indicates a year-over-year increase of 5.46% in 2016 and 7.69% in 2017.

Currently, the insurer carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the insurance industry include Health Insurance Innovations, Inc. (NASDAQ:HIIQ) and Manulife Financial Corporation (NYSE:MFC) with a Zacks Rank #1 (Strong Buy) and Sun Life Financial Inc. (TO:SLF) with a Zacks Rank #2 (Buy).

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