Torchmark To Grow On Core Strengths Amid Higher Expense

On Aug 30, 2016, we issued an updated research report on Torchmark Corp. (NYSE:TMK) .

Torchmark remains focused on increasing its agent count that in turn has been driving premiums at American Income Exclusive Agency, which is the company’s most important distribution channel and primary contributor to life premium and net sales. To that end, the company is targeting agent count between 6,650 and 6,850 by 2016-end. The company projects life sales growth in the range of 7–9% for full-year 2016.

Torchmark’s Global Life continues to benefit from low competition as it operates in a relatively non-competitive market – selling basic life insurance products to middle and lower middle-income households. This aided direct response operations at Global Life grow its fife premiums at a CAGR of 9.0% and underwriting margins at a CAGR of 7.0%, since 1995. Looking forward Torchmark expects life sales growth to be down 5–7% for 2016.

Riding on favorable operating performances, Torchmark expects 2016 net operating income between $4.40 and $4.50 per share, reflecting an 80% increase over 2015 at the midpoint.

Torchmark boasts a strong capital position that supports its effective capital deployment. By virtue of its intelligent capital management strategy, the company has generated 83% returns for its investors over the past 10 years. This makes it an attractive pick for yield-seeking investors.

However, higher administrative expenses, pension costs and investments in IT systems will likely be a drag on Torchmark’s earnings in the near term. Management estimates administrative expenses to be around 6.2% of premium in 2016. Also, a low interest rate environment will continue to impact investment income.

Nonetheless, the Zacks Consensus Estimate has witnessed upward revisions for 2016 as most of the estimates were pulled up in the last 60 days. However, the same for 2017 moved down over the same time frame.

Torchmark's niche market focus, steady capital deployment and strong operating fundamentals should drive its long-term growth. The expected long-term earnings growth is currently pegged at 7.6%.

Zacks Rank & Stocks to Consider

Currently, Torchmark carries a Zacks Rank #3 (Hold). Some better-ranked life insurers are Health Insurance Innovations, Inc. (NASDAQ:HIIQ) , Genworth Financial Inc. (NYSE:GNW) and Sun Life Financial Inc. (TO:SLF) . While Health Insurance Innovations sports a Zacks Rank #1 (Strong Buy), Genworth Financial and Sun Life Financial carry a Zacks Rank #2 (Buy).

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