Lincoln National: Capital Position Strong, Low Interests A Drag

On Jun 20, 2016 we issued an updated research report on Lincoln National Corporation (NYSE:LNC) .

The life insurer’s first-quarter 2016 earnings missed the Zacks Consensus Estimate and also deteriorated year over year. Lower revenues resulted in the underperformance. Nevertheless, the company’s balance sheet remained strong with prudent capital deployment and improvement in book value.

Lincoln National is gradually shifting its business mix toward Life products without long-term guarantees. Over the past few years, the company witnessed a decline in its proportion of sales with guarantees. Thus, a decline in exposure to products without long-term guarantees will shield the company from huge claims.

Further, the company expects free cash flow to be 50% to 55% of operating earnings over the long term.

Given the challenging operating environment, Lincoln National continuously strives to protect and build its capital base and mitigate balance sheet risks. The company adopts strong asset and liability management practices from time to time, including equity and interest rate hedging programs, which partially offset such risk exposure.

Lincoln National also stays focused on enhancing its shareholders value and regularly engages in share buybacks and dividend payout. Last month, the board of directors of the company increased the share buyback authorization to $1 billion.

However, the company has experienced a slowdown in growth due to economic volatility as well as intense competition. Moreover, exposure to a low interest rate environment, has adversely affected net flows, annuities and investment yields.

Zacks Rank and Stocks to Consider

Currently, Lincoln National carries a Zacks Rank #3 (Hold). Some better-ranked stocks are Health Insurance Innovations, Inc. (NASDAQ:HIIQ) , Manulife Financial Corporation (NYSE:MFC) and GWG Holdings, Inc. (NASDAQ:GWGH) . While both Health Insurance and Manulife sport a Zacks Rank #1 (Strong Buy), GWG Holdings holds a Zacks Rank #2 (Buy).

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