Lincoln National (LNC) Down 30.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Lincoln National (LNC). Shares have lost about 30.7% in that time frame, 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 get a better handle on the important drivers.

Lincoln National Q4 Earnings Miss Estimates

Lincoln National earnings of $2.41 per share missed the Zacks Consensus Estimate by 1.23%. However, the bottom line improved about 12.1% year over year. Results gained from an increase in fee income and net investment income partly offset by rise in expenses.

Operating revenues of $4.5 billion surpassed the Zacks Consensus Estimate by 0.6%. The top line is aided by strong performance at its segments – Annuities, Retirement Plan Services, Life Insurance and Group Protection. However, revenues declined marginally on a year-over-year basis.

Segmental Performance

Operating income in the Annuities segment rose 4.3% year over year to $269 million. This was mainly driven by strong net flows as well as higher account values from solid equity market performance.
Total annuity deposits improved 3% from the year-ago quarter to $3.9 billion, driven by growth in variable annuity sales.

Operating income in Retirement Plan Services increased 4.4% year over year to $47 million due to higher account values banking on strong equity market performance and net flows. Total deposits improved 23% from the prior-year quarter’s value to $2.7 billion, owing to growth in recurring deposits and strong first-year sales.

Operating income in Life Insurance segment was up 2.3% year over year to $179 million as a result of favorable mortality and consistent business growth. Moreover, operating revenues in this segment surged 70.6% year over year to $447 million.

Operating income in Group Protection improved 8% from the year-ago quarter’s figure to $54 million. This upside was driven by improvement in the overall loss ratio and premium growth. Operating revenues rose 9% year over year to $297 million.

The Other operations segment incurred a loss of $67 million, wider than $53 million suffered in the prior-year quarter.

Financial Update

As of Dec 31, 2019, Lincoln National’s book value per share, excluding accumulated other comprehensive income, improved 5% year over year to $71.27.

Adjusted operating return on equity (ROE), excluding accumulated other comprehensive income and goodwill, improved 50 bps from the year-ago quarter’s number to 15.9%.

The company ended the quarter with long-term debt of $6.1 billion, up 5.2% year over year.

As of Dec 31, 2019, the company had assets worth $334.8 billion, up 12.3% from the year-ago quarter’s number. Shareholders’ equity also improved 37.2% year over year to $19.7 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Lincoln National has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 this revision looks promising. Notably, Lincoln National has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.