Lincoln National (LNC) Up 11.2% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Lincoln National (LNC). Shares have added about 11.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lincoln National due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lincoln National Incurs Loss in Q3, Beats on Revenues
Lincoln National incurred third-quarter 2022 adjusted loss of $10.23 per share. The Zacks Consensus Estimate was of earnings of $1.93 per share. Earnings of $1.62 per share were reported in the prior-year quarter.
Adjusted operating revenues amounted to $4,630 million, which dropped 11% year over year. Yet, the top line beat the consensus mark by 5.9%.
The quarterly results suffered a blow due to escalating expenses related to benefits, lower returns from LNC’s alternative investment portfolio and feeble contributions from Retirement Plan Services and Life Insurance segments. Nevertheless, a decline in pandemic-related claims and robust sales across the Group Protection unit partly mitigated the downside.
Costs and Expenses
Lincoln National’s expenses of $7,935 million increased 62.8% year over year in the quarter under review, primarily due to higher costs related to benefits and the Spark program. Benefits account for 64.3% of the quarter’s total expenses.
Segmental Update
The Annuities segment’s operating income soared 33% year over year to $449 million in the third quarter on account of $217 million worth net favorable notable items linked with LNC’s annual review of deferred acquisition costs (DAC) and reserve assumptions. The figure outpaced the Zacks Consensus Estimate of $277 million. Operating revenues fell 6.6% year over year to $1,183 million but beat the consensus mark of $1,126 million and our estimate of $1,136.1 million. Total annuity deposits of $3,262 million grew 21% year over year.
Operating income in the Retirement Plan Services segment amounted to $52 million, which tumbled 13.3% year over year, mainly due to reduced returns from Lincoln National’s alternative investment portfolio and a fall in account values. The figure came higher than the consensus mark of $48.2 million. Operating revenues of $316 million decreased 3.7% year over year, higher than the consensus mark of $302 million. Total deposits improved 16.1% year over year to $2,799 million in the quarter under review, courtesy of a 33% and 9% rise in first-year sales and recurring deposits, respectively.
The Life Insurance segment recorded an operating loss of $2,160 million in the third quarter against the prior-year quarter’s operating income of $93 million. Lower returns from the insurer’s alternative investment portfolio were one of the factors hampering the performance of the segment. Operating revenues plunged 24.2% year over year to $1,762 million, outpacing the Zacks Consensus Estimate of $1,717 million . Total Life Insurance sales of $171 million increased 3% year over year on the back of higher indexed universal life sales. Total deposits of $1,386 million rose 4.7% year over year.
The Group Protection segment reported an operating income of $37 million in the third quarter against the prior-year quarter’s loss of $32 million. This significant growth came from reduced pandemic-linked claims. Operating revenues of $1,333 million improved 7.2% year over year and came above the consensus mark of $1,289 million. Insurance premiums advanced 8.4% year over year to $1,200 million. Total sales in the segment soared 83% year over year to $88 million.
Financial Update (as of Sep 30, 2022)
Lincoln National exited the third quarter with cash and invested cash of $1,472 million, which declined 43.7% year over year. Total assets of $324.7 billion fell 13.9% year over year.
Long-term debt amounted to $5,959 million, which decreased 5.8% year over year. It had short-term debt of $500 million at the third-quarter end. As of Nov 2, 2022, its senior debt received ‘A-‘ and ‘BBB+’ ratings from Standard & Poor’s and Fitch, respectively.
Shareholders’ equity of $2,217 million plunged 89.5% year over year.
Book value per share, excluding accumulated other comprehensive income (AOCI), decreased 16.7% year over year to $64.09.
Adjusted operating return on equity excluding AOCI came in at a negative figure of 57% during the third quarter.
Capital Deployment Update
Lincoln National rewarded $127 million to its shareholders through share buybacks worth $50 million and common dividend payments worth $77 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -16.18% due to these changes.
VGM Scores
Currently, Lincoln National has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lincoln National has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Lincoln National is part of the Zacks Insurance - Life Insurance industry. Over the past month, Voya Financial (VOYA), a stock from the same industry, has gained 0.5%. The company reported its results for the quarter ended September 2022 more than a month ago.
Voya reported revenues of $356 million in the last reported quarter, representing a year-over-year change of -21.4%. EPS of $2.30 for the same period compares with $1.36 a year ago.
Voya is expected to post earnings of $1.55 per share for the current quarter, representing a year-over-year change of -18.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -6.8%.
Voya has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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