A month has gone by since the last earnings report for Torchmark Corporation (NYSE:TMK) . Shares have added about 1.6% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Torchmark's Q3 Earnings & Revenues Top, Gives Guidance
Torchmark Corporation’s third-quarter 2017 net operating income of $1.23 per share beat the Zacks Consensus Estimate by 2.5%. Earnings improved nearly 7% year over year on the back of higher premiums from the Life and Health segments. Lower share count due to continuous buybacks also drove the upside.
Including realized gains on investments of 7 cents and an unfavorable guaranty fund assessment of 1 cent, net income improved 3.2% year over year to $1.29 per share.
Behind the Headlines
Torchmark reported total premium revenue of $819 million, up 4.6% year over year. This upside was primarily driven by higher premiums from Life and Health Insurance businesses.
Net investment income increased 5.4% year over year to $214 million.
The company’s total revenue of $1 billion grew 4.8% from the year-ago quarter. This top-line improvement was driven by growth in Life and Health Insurance premiums along with higher net investment income. Also, revenues beat the Zacks Consensus Estimate by 0.7%.
Excess investment income, a measure of profitability, climbed 7% year over year to $60.9 million.
Torchmark’s total insurance underwriting income grew 6% year over year to $159.1 million. Improvement in Life and Annuity Insurance underwriting margins resulted in the upside. However, higher administrative expenses partially offset this improvement.
Administrative expenses increased 6% year over year to $52.4 million.
Total benefits and expenses rose 4.7% year over year to $825 million.
Segment Update
Premium revenues at Torchmark’s Life Insurance operations increased 5.6% year over year to $576 million. This improvement can be attributed to higher premiums written by the distribution channels — American Income Agency, Global Life Direct Response and LNL Agency. While American Income Agency grew 9%, Global Life Direct Response increased 4% and LNL Agency rose 2%. Life Insurance underwriting income improved 7% year over year to $152.7 million. Net sales at the life insurance segment were 3% higher on a year-over-year basis.
Health Insurance premium revenues rose 2.5% year over year to $243 million, while underwriting income of $55.7 million increased 5% year over year. Net health sales grew 3% year over year.
Annuity underwriting margins remained flat year over year to $2.6 million.
Financial Update
Shareholders’ equity as of Sep 30, 2017 rose 1.6% year over year to $5.2 billion.
Torchmark reported book value per share (excluding net unrealized gains on fixed maturities) of $34.27, up 7.6% year over year.
As of Sep 30, 2017, operating return on equity was 14.4% compared with 14.7% as of Sep 30, 2016.
Share Repurchase and Dividend Update
In the quarter, Torchmark repurchased 1 million shares for a total cost of $80 million.
The company declared a dividend of 15 cents per share in the quarter, marking a 7.1% hike from the year-ago quarter.
Guidance
Torchmark estimates net operating income from continuing operations between $4.77 and $4.83 per share in 2017.
For 2018, net operating income from continuing operations per share is expected between $5 and $5.25.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter.
VGM Scores
At this time, Torchmark's stock has an average Growth Score of C, however its Momentum is lagging a lot with an F. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy).
Torchmark Corporation (TMK): Free Stock Analysis Report
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