Goldman Removes CNO Financial From Buy List

After market close on September 29, CNO Financial Group Inc CNO announced its plans to halt its buyback and instead recapture a $550 million long-term care block reinsured to Beechwood Re. The LTC Re recapture derails the LT clean-up, Goldman Sachs’ Michael Kovac said in a report.

Analyst Kovac downgraded the rating on the company from Buy to Neutral, while reducing the price target from $21 to $17.

Lack Of Upside Despite Underperformance

Since adding CNO Financial to the GS Buy List on November 17, 2015, shares of the company have lost 21 percent, versus a 5 percent gain in the S&P. The pressure has been driven by uncertainty around the LTC Re deal. Although the stock’s multiples have compressed, it does not provide upside since the audit has still not been completed, Kovac commented.

Impact Of Recent Announcement

The expanded scope of the LTC Re deal translates to continued uncertainty. “The full audit of the $116mn Platinum related assets will not be completed until 4Q and the scope has expanded to include an additional $90mn. As a result, we think the overhang could remain,” the analyst wrote.

The latest charges announced include a 43 percent write-down of the Platinum assets and an 18 percent write-down to all other Level 3 assets.

The EPS estimates for 2017 and 2018 have been reduced from $1.65 to $1.57 and from $1.85 to $1.70, respectively, to reflect lower buybacks.

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