Net Investment Income Could Stay Under Pressure At Lincoln National

Credit Suisse initiated coverage of Lincoln National Corporation LNC with Neutral rating and $57 target price, citing sustained low rates and DOL fiduciary rule.

"[N]et investment income should continue to come under pressure as higher portfolio yields continue to roll off and there is a possibility of unfavorable unlocking in both Life Insurance and Annuities," analyst John Nadel wrote in a note.

The company could see spread compression and possibly DAC/reserve charge if rates continue to remain low.

However, the analyst sees book value risk as "relatively immaterial" should rates remain near current levels (or continue even lower).

Nadel expects operating earnings to grow at a relatively modest pace of 5 percent/4 percent in 2017/2018, respectively, and company could retire between 3-5 percent of outstanding shares per year (running at about 60 percent combined dividend and buyback payout ratio).

The risks to the Neutral rating include: "1) lower equity markets could impact Annuities and Retirement segment earnings; 2) the DOL fiduciary rule could have a material negative impact on VA sales."

Nadel's price target of $57 represents 8.5x his 2017 estimated EPS of $6.66.

At time of writing, shares of Lincoln National fell 1.04 percent to $48.69.