Torchmark's High Administrative Expenses Raise Concern

On Jul 12, we issued an updated research report on Torchmark Corporation (NYSE:TMK) .

Torchmark Corporation has been witnessing high administrative expenses over the past few years. Higher pension costs, owing to the mandatory implementation of a new mortality table and increased investments in IT systems mainly contributed to the overall increase in expenses. This is likely to hurt the company’s bottom line going forward.

Also, the third primary distribution system of the company, Liberty National, continues to underperform. The weakness of this segment may be attributed to its cost structure, which is characterized by high, fixed acquisition costs. Management does not anticipate this distribution channel to contribute meaningfully to the company’s near-term earnings.

Further, the low interest rate environment will continue to impact Torchmark’s investment income.

Nevertheless, the company’s niche market focus, steady capital deployment and strong operating fundamentals should drive long-term growth. Moreover, the company estimates sales growth for its life and health segments in distribution channels.

In addition, the company is engages in shareholder-friendly moves and has generated 83% returns for its investors over the last 10 years. This has been supported by the insurer’s prudent capital management strategy.

The Zacks Consensus Estimate is currently pegged at $1.10, which translates to a year-over-year growth of 5%. Our proven model does not conclusively show that the company is likely to beat estimates this quarter. This is because the company has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks are Universal American Corp (NYSE:UAM) , GWG Holdings, Inc. (NASDAQ:GWGH) and Manulife Financial Corporation (NYSE:MFC) . While Universal American sports a Zacks Rank #1 (Strong Buy), both GWG Holdings and Manulife Financial hold a Zacks Rank #2 (Buy).

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