Why You Should Hold On To Torchmark (TMK) In Your Portfolio

Torchmark Corporation (NYSE:TMK) remains well-poised for growth, banking on better-performing American Income Exclusive Agency, consistent operations at Global Life and an effective capital deployment. This Zacks Rank #3 (Hold) life insurer remains promising on the back of a number of growth drivers.

Northbound Estimates: The stock has seen the Zacks Consensus Estimate for both current and next-year earnings being revised a cent upward over the last 60 days.

Price Performance: Shares of Torchmark have rallied 23% so far this year, outperforming the S&P 500 index’s gain of 20.1%. However, the shares have slightly underperformed the industry’s growth of 23.1%.

Positive Earnings Surprise History: Torchmark has surpassed the Zacks Consensus Estimate in all the last four quarters with an average beat of 2.17%.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.80 on revenues of $4.1 billion, representing a year-over-year top and bottom-line improvement of 4.8% and 5.3%, respectively.

For 2018, the Zacks Consensus Estimate for earnings per share stands at $5.15 on revenues of $4.3 billion, representing a year-over-year increase of 7.3% and 4.1%, respectively.

Torchmark has expected long-term earnings per share growth of 7.2%.

Underpriced: Looking at the company’s price-to-book ratio — the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next — shares are underpriced at the current level. The company has a trailing 12-month P/B ratio of 2.04, falling below the industry average of 3.8.

VGM Score: Torchmark carries a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Growth Drivers in Place

American Income Exclusive Agency — Torchmark’s most important distribution channel — has been primarily fueling life premium and net sales. The company projects growth of 7% for life sales in 2017 and the same in the 6-10% range for 2018.

Declining negative impact due to lengthy delays in receiving Part D reimbursements has been driving improvement in excess investment income. Torchmark expects the metric to grow about 8-11% on a per share basis in 2017.

Torchmark estimates net operating income between $4.77 and $4.83 per share in 2017 on improved life underwriting income at American Income and health insurance businesses. For 2018, it guides the bottom line between $5 and $5.25.

Torchmark’s prudent capital management strategy has helped the company return 83% to its investors over a decade now. Banking on a solid capital position, the company’s dividend witnessed a five-year growth rate of 13.4%, better than the industry average of 5.8%. This apart the company engages into share buyback as well.

Riding on a strong operational performance, the company expects to generate free cash flow of $325 million in 2017 and between $310 million and $320 million in 2018.

Stocks to Consider

Some better-ranked life insurance stocks are American Equity Investment Life Holding Company (NYSE:AEL) , Primerica, Inc. (NYSE:PRI) and Lincoln National Corp. (NYSE:LNC) .

American Equity Investment develops and sells fixed index and fixed rate annuity products in the United States. The company came up with an average four-quarter positive surprise of 24.26%. Shares of the company have soared 46.5% in a year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Primerica distributes financial products to middle-income households in the United States and Canada. The company delivered an average four-quarter positive surprise of 0.96%. Shares of the company have surged 39.9% in a year. The stocks carries a Zacks Rank #2 (Buy).

Lincoln National is a diversified life insurance and investment management company. It pulled off a four-quarter average beat of 9.83%. The stock carries a Zacks Rank of 2.

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