Torchmark (TMK) Looks Promising: Time To Add The Stock?

Torchmark Corporation’s (NYSE:TMK) niche market focus, solid operating fundamentals and a prudent capital management position it well for growth. The company has been witnessing positive estimate revisions over the past 60 days. This Zacks Rank #2 (Buy) life insurer remains promising on the back of a number of growth drivers.

Northbound Estimates: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 1.1% upward while that for 2018, 1.4% upward over the last 60 days.

Price Performance: Shares of Torchmark have rallied 22.4% in a year, outperforming the S&P 500 index’s gain of 18.5%. However, the shares have slightly underperformed the industry’s growth of 24%.

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

Growth Projections: The Zacks Consensus Estimate for current-0year 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 is $5.15 on revenues of $4.3 billion, reflecting a year-over-year increase of 7.3% and 4.1%, respectively.

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

Attractive Valuation: 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 1.92, falling significantly below the industry average of 2.38. Undervalued shares with growth prospects are best investment bets. Torchmark carries a Value Score of B.

Back-tested results have shown that stocks with a Value Score of A or B when combined with a favorable Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.

Growth Drivers in Place

Torchmark’s most important distribution channel, American Income Exclusive Agency, has been largely driving the company’s life premium and net sales. The company projects life sales to grow 7% in 2017 and in the range of 6-10% in 2018.

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

Torchmark effectively deploys capital. The company has increased dividend annually and the metric has witnessed a five-year growth rate of 13.4%, better than the industry average of 5.8%. Torchmark also engages in share buybacks. Given its prudent capital management strategy, the company has returned 83% to its investors over the past 10 years.

Banking 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.

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 per share.

Other Stocks to Consider

Investors interested in the same space can also look at other top-ranked stocks namely, Reinsurance Group of America, Incorporated (NYSE:RGA) , Primerica, Inc. (NYSE:PRI) and American Equity Investment Life Holding Company (NYSE:AEL) , each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Reinsurance Group engages in reinsurance business, offering individual and group life and health insurance products. The company pulled off an average four-quarter positive surprise of 11.77%. Shares of the company have surged 30.5% in a year.

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.

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.

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