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Tickers in this Article: CNO, EIHI, ESGR, AXAHY
CNO Financial Group, Inc. (CNO) resumed its share repurchase activity by deploying $50 million to repurchase 4.4 million shares during the second quarter of 2013. This translates into an average cost of $11.31 per share.

Shares bought back comprise 2% of CNO Financial’s outstanding share count of 223.5 million as of Mar 31, 2013. The company also spent $9.4 million to buy back convertible debentures worth $4.5 million at a premium. This takes the total expenditure on buybacks in the second quarter of 2013 to $59.4 million.

Apart from the share and debenture repurchase, CNO Financial also made a principal prepayment of $18.9 million to fulfill the terms of its senior secured credit agreement. Further, the company made a scheduled principal payment of $5.7 million toward its term loan installment. The next scheduled installment payment of $12.5 million is due on the last day of September this year.

CNO Financial did not repurchase any shares in the first quarter of 2013 but spent $125 million to repurchase convertible debentures. Thus, its total expenditure on securities buyback was higher than the second quarter. Total capital deployment for securities buyback in the first half of 2013 amounted to $184.3 million.

Due to the redemption of the debentures at a premium, CNO Financial will likely record a one-time charge (post-tax) of about $5 million during the second quarter of 2013. The company expects to spend another $65.7­­­–$115.7 million on the repurchase of securities in 2013, taking the total amount to $250–$300 million.

CNO Financial has enough capital flexibility to finance these buybacks. The company had cash and cash equivalents of $251.6 million as of Mar 31, 2013. Moreover, the operating cash flow of CNO Financial has been strong over the years. The company generated operating cash flow of $114.6 million in the first quarter of 2013, which is more than enough to cover the capital deployed in the second quarter.

Further, the timely repayment of the debt obligations and fulfillment of the terms of the senior secured credit agreement reflect CNO Financial’s strong capital position and should boost the confidence of creditors. As a result, the company should not have trouble in obtaining credit in future. Moreover, these measures go a long way in retaining the confidence of credit rating agencies and may even result in a rating upgrade in the long term.

Further, we expect the earnings per share of CNO Financial to increase in the upcoming quarters as share buyback generally increases the earnings per share due to the decline in the number of outstanding shares. The Zacks Consensus Estimate for CNO Financial’s second-quarter earnings currently stands at 26 cents per share, up 31% year over year.

CNO Financial carries a Zacks Rank #2 (Buy). Other multi-line insurance companies worth considering are AXA Group (AXAHY), Eastern Insurance Holdings, Inc. (EIHI) and Enstar Group Limited (ESGR). All these companies carry a Zacks Rank #1 (Strong Buy).

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