02. Lincoln National Corporation (NYSE:LNC)
Forward P/E ratio as of October 2: 3.22
Number of Hedge Fund Holders: 37
Lincoln National Corporation (NYSE:LNC) is a diversified insurance and retirement company operating through its four primary segments: Life Insurance, Annuities, Group Protection, and Retirement Plan Services. The company’s competitive position in these areas, coupled with its disciplined capital management strategy, makes it a compelling pick among mid-cap stocks with low P/E ratios. As of October 2, Lincoln National Corporation (NYSE:LNC) has a forward P/E ratio of 3.22, making it an attractive option for value-focused investors. Furthermore, the stock saw an increase in hedge fund holders, rising to 37 in Q2 2024 from 32 in the previous quarter, indicating growing institutional interest.
During the second quarter of 2024, Lincoln National Corporation (NYSE:LNC) exceeded expectations by reporting an impressive EPS of $5.21, significantly higher than the anticipated $1.78. This strong performance was driven by robust growth in its Annuities and Group Protection segments. The Annuities business recorded its highest earnings quarter in two years, with total annuity sales reaching $3.8 billion, up 48% from the prior year. This growth was supported by a well-balanced product mix, with 70% of sales in spread and spread-like products. Additionally, fixed annuity sales more than doubled year-over-year, highlighting the effectiveness of the company’s strategy to capture market share in this segment.
Lincoln National Corporation (NYSE:LNC) Group Protection segment also showed strength, with earnings in line with the previous year’s record quarter and a margin of 8.2%. Sales growth was robust, increasing by 68% compared to the same quarter last year, driven by new business from existing customers and a focus on supplemental health products. This momentum reflects Lincoln’s successful execution of its strategy to diversify its product offerings and expand into new market segments.
The company also achieved an estimated RBC ratio of over 420%, bolstering its financial stability. This strong capital position, combined with Lincoln’s efforts to optimize its operating model and reduce expenses, positions it well for future growth and profitability. Overall, Lincoln National Corporation (NYSE:LNC) solid financial performance, strategic business realignment, and strong fundamentals justify its inclusion in the list of mid-cap stocks with low P/E ratios.
Miller Value Deep Value Strategy stated the following regarding Lincoln National Corporation (NYSE:LNC) in its first quarter 2024 investor letter:
“During the quarter, we initiated a position in Lincoln National Corporation (NYSE:LNC). Lincoln Financial is a 120-year-old financial services company that provides financial protection and security to its customers through annuities, life insurance, group protection and retirement plan services. Over the past two years, the company has seen significant headwinds in its Life Insurance segment and profit challenges across the business largely due to the Covid outbreak. New senior management has indicated a greater focus on strengthening the balance sheet, focusing on more capital-efficient new business, and improving long-term free cash flow generation. Over the past year, the company has conducted a series of transactions that have improved their balance sheet and enhanced the Firm’s capital ratios. Management is undertaking cost reduction actions and the headwinds in their life segment appear poised to turn to tailwinds over the next couple of years and potentially allow the segment to return to normalized profitability. In addition, the company’s new Head of Workplace Solutions whopreviously at MetLife is focused on improving the company’s Group and Retirement business, accelerating organic growth through new product offerings, and narrowing the segment margins with peers. If the company’s plans are executed well, Lincoln’s operating income could grow double digits over the next couple of years, improving company ROE (return on equity) and free cash flow conversion.
Lincoln is down 60%+ from its 2-year high, at an attractive 50% discount to book value and 30%+ normalized earnings yield. Achieving long-term free cash flow conversion targets would support annual free cash flow in excess of $1B. With a forward price-to-earnings (P/E) multiple close to four times, every one multiple point improvement generates approximately 25% in share price returns (significantly higher than the S&P 500 today which would be closer to 5% for each multiple point improvement and for the top five market caps, closer to 3%). Over the next 3-5 years, LNC returning to normalized earnings and valuation expanding back towards the peer group 20-year P/E average of 9.6x and 1.2x book value, would support upside potential near three times its current price levels.”
