Lincoln National (LNC) Down 7.7% Since Last Earnings Report: Can It Recover?

A month has passed since Lincoln National’s (LNC) last earnings report. Shares have lost about 7.7% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lincoln National due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Lincoln National’s third-quarter earnings miss estimates, up y/y

Lincoln National reported third-quarter 2021 adjusted earnings of $1.62 per share, missing the Zacks Consensus Estimate by 36%. However, the financial results compared favorably with the year-ago quarter’s loss of 72 cents per share.

The company’s quarterly results were influenced by growing sales, pricing discipline, cost-cutting efforts and share buybacks. However, this advantage has been partially offset by the escalation of Covid-19-related claims.

Adjusted operating revenues increased 8.7% year-over-year to $5.2 billion in the third quarter, driven by solid contributions from all four of the company’s segments – Annuities, Retirement Plan Services, Life Insurance and Group Protection. The top line exceeded the consensus by 6.7%.

Total expenses of $4.9 billion decreased 0.6% year-over-year, primarily due to lower benefits costs.

Segment efficiency

The annuity segment’s operating income increased 72% year-over-year to $338 million in the third quarter, driven by solid equity market performance that helped account values ​​grow. Operating revenue increased 12.5% ​​year-over-year to $1.3 billion. Total annuity deposits increased 7% year over year to $2.7 billion.

The Retirement Plan Services segment reported operating income of $60 million, up 20% year-over-year. The positive impact can be attributed to increased account value resulting from strong equity market performance, strong returns from the company’s alternative investment portfolio and continued spending efficiency. Operating revenues of $328 million increased 5.5% year-over-year. Total deposits of $2.4 billion increased 2% year-over-year in the quarter.

Operating income for the Life Insurance segment was $93 million, compared to the prior-year quarter’s operating loss of $311 million. The significant growth was supported by solid returns from the company’s alternative investment portfolio. Operating revenue increased 9.3% year-over-year to $2.3 billion. Total life insurance sales, however, fell 10.8% year-over-year to $166 million in the third quarter.

The Group’s Protection segment incurred an operating loss of $32 million compared to prior quarter operating income of $6 million. The results were worsened by the increased impact of the pandemic on mortality. Operating revenues of $1.2 billion increased 5% year-over-year. Total sales fell 2% year-over-year to $48 million in the quarter.

Financial update (as of September 30, 2021)

The company ended the third quarter with cash and $2.6 billion in investments, up 0.7% year-over-year. Total assets of $377.1 billion increased 8.4% year over year.

Long-term debt for the quarter was $6.3 billion, down 5.8% year-over-year. Shareholders’ equity declined 1.8% year-over-year to $21.2 billion.

Book value per share, excluding accumulated other comprehensive income (AOCI), increased 8.2% year over year to $76.96.

Adjusted operating return on equity (ROE) excluding AOCI was 8.6%, compared to a negative 3.9% in the year-ago quarter.

Share an update on the buyback

In the third quarter, the company bought back shares worth $200 million. As part of the accelerated share buyback program, the company has recently started gradual share buybacks related to a block transaction.

A dividend increase was announced

At the same time, the company’s management board also approved an increase in the quarterly dividend by 7%. The new dividend of 45 cents per share compared to the previous payment of 42 cents will be paid on February 1, 2022 to shareholders of record as of January 10, 2022.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates. Due to these changes, the consensus estimate moved -8.49%.

VGM results

Currently, Lincoln National has a poor growth score of D, which means the same momentum score. However, the stock is rated B for value, putting it in the second quintile for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Lincoln National carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Lincoln National Corporation (LNC): Free Stock Analysis Report

To read this article on Zacks.com click here.