On Wednesday, Barclays began coverage on shares of Lincoln National Corporation (NYSE:LNC), assigning an Equalweight rating and setting a price target of $35.00. The initiation comes as Lincoln National continues to recover from a substantial universal life insurance charge in 2022, which had significantly impacted its capital standing.
The insurance company has since made strides in improving its capital position, with its risk-based capital (RBC) ratio now exceeding 420%. This improvement shifts the company's focus towards capital deployment, specifically aimed at pre-funding the repayment of a preferred bond that carries a high coupon rate of over 9%.
Barclays notes that Lincoln National's capital generation is expected to be primarily directed towards this funding need through most of 2025. The management's strategy appears to be centered on further strengthening the balance sheet before considering other uses of capital.
The analyst from Barclays highlighted the progress Lincoln National has made in repairing its capital position after falling below its risk-based capital objectives. This progress is a key factor in the analyst's rating, reflecting a balanced view of the company's current state and its forward-looking capital management plans.
Lincoln National's efforts to pre-fund the pay-down of the preferred bond will likely consume its capital generation for an extended period. This strategic move is seen as a step towards ensuring a more robust financial structure for the company in the coming years.
In other recent news, Lincoln National Corporation reported substantial growth in its annuities, group protection, and retirement plan services businesses for the second quarter of 2024. The company's adjusted operating income was $319 million, or $1.84 per share, while the net income reached $884 million, or $5.11 per diluted share.
The sale of the wealth management business significantly increased the company's estimated Risk-Based Capital (RBC) ratio, which now exceeds 420%.
In addition to these developments, Lincoln National has revised its executive severance plan to include the CEO among the participating officers. The updated plan, disclosed in a recent SEC filing, outlines the benefits the CEO will receive in the event of an involuntary termination, excluding instances of dismissal for cause.
The CEO will be entitled to a severance package equal to twice their annual base salary plus the target annual incentive bonus, distributed over 104 weeks following termination.
Despite facing an operating loss in the life segment due to the impacts of the Fortitude Re transaction and below-target alternative investment income, Lincoln Financial is preparing for the launch of its Bermuda-based reinsurance subsidiary, Alpine, to support new business flow.
This move is part of the company's ongoing efforts to build a strong capital foundation and diversify its product offerings for future growth.
InvestingPro Insights
As Lincoln National Corporation (NYSE:LNC) continues to navigate its financial recovery, real-time data from InvestingPro offers a deeper look into the company's current standing. With a market capitalization of $5.33 billion and a remarkably low price-to-earnings (P/E) ratio of 3.24, Lincoln National appears to be trading at a valuation that might attract investors looking for potentially undervalued stocks. This is underscored by an adjusted P/E ratio for the last twelve months as of Q2 2024, which stands at 4.08, still indicating a low earnings multiple compared to industry peers.
While the company's revenue has seen a decline of 11% over the last twelve months as of Q2 2024, it's important to note that quarterly revenue growth for Q2 2024 has surged by 56.15%. This suggests a potential turnaround in the company's sales performance. Additionally, Lincoln National has upheld its reputation for reliability by maintaining dividend payments for 54 consecutive years, with a current dividend yield of 5.68%, reflecting a commitment to shareholder returns.
InvestingPro Tips highlight that analysts are optimistic about Lincoln National's profitability for the year, which aligns with the company's strategic focus on improving its balance sheet. Furthermore, the company's liquid assets exceed short-term obligations, providing financial flexibility. For those interested in further analysis and tips, there are additional insights available on InvestingPro, including a total of 9 InvestingPro Tips for Lincoln National Corporation.
Finally, while the stock's price has experienced a significant uptick of 25.91% over the past six months, it is trading at 86.31% of its 52-week high, potentially offering room for growth if the company continues on its path of recovery and capital management. The current price, as of the previous close, stands at $31.69, with Barclays' price target set at $35.00, closely aligning with InvestingPro's fair value estimate of $35.7.
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