Should Value Investors Consider CNO Financial (CNO) Stock?
Zacks Equity Research
Updated
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CNO Financial Group, Inc. CNO stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CNO Financial has a trailing twelve months PE ratio of 15.15, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.50. While CNO Financial’s current PE level puts it above its midpoint of 13.42 over the past five years, the current level is about a notch lower than the highs for the stock, signaling some scope for entry.
Further, the stock’s PE stands a bit lower than the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 15.85. This indicates that the stock is slightly undervalued right now, compared to its peers.
We should also point out that CNO Financial has a forward PE ratio (price relative to this year’s earnings) of just 13.89, so it is fair to say that a slightly more value-oriented path may be ahead for CNO Financial stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CNO Financial has a P/S ratio of about 0.91. This is way lower than the S&P 500 average, which comes in at 3.18 right now, making the stock undervalued from this aspect too.
Broad Value Outlook
In aggregate, CNO Financial currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes CNO Financial a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) for CNO Financial comes in at 5.12, which is better than the industry average of 7.21. Clearly, CNO is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CNO Financial might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘A’. This gives CNO a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been quite encouraging. Both, the current quarter and full year have seen one upward estimate revision, each in the past sixty days, compared to no downward revisions.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has risen by 2.8% in the past two months, while the full year estimate has inched higher by 0.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CNO Financial Group, Inc. Price and Consensus
CNO Financial Group, Inc. Price and Consensus | CNO Financial Group, Inc. Quote
However, this somewhat bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the bullish analyst sentiment indicates that the stock’s prospects in the near term look good.
Bottom Line
CNO Financial is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 20% out of over 250 Zacks industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Insurance – Multi Line industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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