On Jun 19, 2013, shares of Torchmark Corp. (TMK) hit a 52-week high of $65.88. The momentum was driven by the recently completed acquisition of Family Heritage and a favorable outlook from rating agency.
Torchmark, to fortify its supplemental health insurance line of business, acquired privately held supplemental health insurer Family Heritage Life Insurance Company of America. The acquisition has also been immediately accretive to the company’s earnings.
Torchmark has also got its investment grade financial strength as well as issuer credit ratings affirmed from the rating agency A.M.Best, with a stable outlook. It also scores strongly with other rating agencies.
Torchmark enjoys solid operating fundamentals. It boasts a strong market presence with a broad product profile. The company operates via its subsidiaries, which have been a favorable contributor to the company’s earnings.
American Income – Torchmark’s most profitable distribution system – has grown consistently over the past several years leading to an increase in net sales. Another distribution channel, Globe Life, which operates in a relatively non-competitive market, enjoys advantages such as an experienced workforce and better cost-control. The Direct response operation at Globe Life has also shown consistent growth over the past several years.
Torchmark has also undertaken restructuring efforts in an effort to do away with non-core businesses that will strengthen its capital and at the same time allow it to focus on core operations.
Moreover, this Zacks Rank #3 (Hold) life insurer is maintaining a strong capital position.
Valuation for Torchmark looks reasonable. While the shares are trading at a premium to the peer group both on a forward price-to-earnings basis and price-to-book basis, return on equity is substantially higher than the peer group average. The 1-year return from the stock came in at 34.1%, much above the S&P’s return of 21.3%.
While we remain cautious on Torchmark, other life insurers like StanCorp Financial Group Inc. (SFG), China Life Insurance Co. Ltd. (LFC), Reinsurance Group of America Inc. (RGA) carrying favorable Zacks Rank #2 (Buy) are worth considering.