Consumer And Worksite Divisions Will Expand Market Reach

Key Takeaways

• Focus on underserved middle-income markets and strategic geographic expansion supports revenue growth and increased production.
  
• Investments in technology and strong capital management enhance operational efficiency, customer experience, and shareholder returns.
  
• Macroeconomic uncertainties and regulatory changes may challenge CNO's revenue growth, profitability, and financial predictability amid shifts in consumer demand and industry trends.

Catalysts

Through its subsidiaries, develops, markets, and administers health insurance, annuity, individual life insurance, insurance products, and financial services for middle-income pre-retiree and retired Americans in the United States.

• CNO Financial Group sees sustained growth potential in its Consumer division, focusing on the underserved middle-income market and offering consistent strong performance in financial and health products, which supports future revenue expansion.
  
• The company has maintained strong annuity collected premiums and brokerage and advisory growth, indicating healthy investment demand, likely boosting future earnings.
  
• Strategic geographic expansion in the Worksite Division continues to deliver significant growth, contributing to increased production and enhancing net margins.
  
• Investments in technology, such as the Optavise Clear product, are expected to drive operational efficiency and improve the customer experience, potentially increasing revenue and profit margins.
  
• Consistent capital management, including significant share repurchases supported by robust liquidity, is likely to improve earnings per share and return on equity.

CNO Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNO Financial Group's revenue will decrease by 0.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 10.3% in 3 years time.
• Analysts expect earnings to reach $433.9 million (and earnings per share of $4.63) by about April 2028, up from $305.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, down from 12.4x today. This future PE is lower than the current PE for the US Insurance industry at 14.1x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

CNO Financial Group Future Earnings Per Share Growth

Risks

• Uncertainty in macroeconomic drivers such as interest rates may pose risks to CNO's revenue and investment returns, potentially impacting future profitability.
  
• Fee income was adversely impacted by ASC 606 revenue recognition accounting rules, which could lead to volatility in reported earnings.
  
• A decline in direct-to-consumer life sales due to lower lead volumes and increased advertising costs could affect revenue growth.
  
• Economic recessions or sustained inflation could reduce consumer demand for insurance products, impacting sales and revenue.
  
• Shifts in Medicare Advantage policy sales towards smaller carriers with less predictable revenue projections could impact fee income and financial predictability.

Valuation

• The analysts have a consensus price target of $43.6 for CNO Financial Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $49.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $433.9 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $38.01, the analyst price target of $43.6 is 12.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.