CNO Reduces Share Buyback in 4Q - Analyst Blog
January 03 2012 - 12:00PM
Zacks
CNO
Financial Group Inc. (CNO) has lowered its latest share buyback
due to a reduced cash balance on its balance sheet. The company
repurchased approximately 2.35 million shares in the fourth quarter
of 2011, significantly down from 6.6 million shares in the prior
quarter. CNO
Financial spent only $14.1 million in total during the quarter for
purchasing the shares at an average price of $6.02.
The company’s fourth-quarter repurchase brings the total
buybacks
under its $100 million share repurchase program to 11.12 million
shares at an average price of $6.28 per share. The total purchase
price for the shares bought back since the commencement of the
repurchase program in May 2011 amounts to $69.8 million.
Although the cash balance has declined moderately,
CNO Financial
is expected to strengthen its cash position in future with the help
of a steady cash flow. This in turn should provide the company
flexibility to increase the pace of share buybacks. The company has been
able to maintain a solid cash position over the last few years due
to substantial growth in cash flow from operating and financing
activities.
Concurrently, CNO Financial also announced the prepayment of $14.1
million of the outstanding principal under its senior secured
credit agreement. As per the terms of the agreement, the company is
required to make principal prepayment equal to the amount of
outflow toward certain restricted payments, including share
repurchases, in case its debt-to-total capitalization ratio is over
17.5%.
However, if CNO Financial’s debt-to-total capitalization stays
between 17.5–12.5%, principal prepayment of 50% of such amount has
to be made, while no mandatory principal prepayment is required
when the ratio is below 12.5%.
The senior secured principal prepayment during the fourth
quarter completely covered the repayment scheduled for June 30,
2016 and also partly covered the repayment scheduled for March 31,
2016. At present, CNO Financial has no repayment scheduled under the
senior secured credit agreement until September 30, 2012, when it
has to repay $10 million.
The share repurchases and debt prepayment by
CNO Financial
is likely to have an incremental effect on the company’s book value
and boost its future earnings per share. Moreover, the principal
prepayment will reduce CNO Financial’s total cost of debt and debt-to-total
capital ratio.
However, the reduced share repurchase did not encourage the
investors. It is likely that they were expecting a higher quantity
of repurchase based on the magnitude of buyback in the third
quarter of 2011. Consequently, on Friday, the shares of
CNO Financial
closed at $6.31, down 1.56%, on the New York Stock Exchange.
The company competes with AFLAC Inc. (AFL) and
Torchmark Corp. (TMK). Currently, CNO Financial carries a
Zacks #3
Rank, which translates into a short-term Hold rating. Considering
the fundamentals of the company, we are also maintaining our
“Neutral” recommendation on the shares.
AFLAC INC (AFL): Free Stock Analysis Report
CNO FINL GRP (CNO): Free Stock Analysis Report
TORCHMARK CORP (TMK): Free Stock Analysis Report
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