KBW Starts CNO Financial At Outperform, Sees 13% EPS Growth Over Next Three Years

In a report published Wednesday, Keefe, Bruyette & Woods analyst Ryan Krueger initiated coverage of

with an Outperform rating and price target of $22. The analyst sees the company as possessing a "valuable niche franchise." According to the Keefe, Bruyette & Woods report, the company exclusively caters to the middle-income population in the US, focusing specifically on seniors. This is a market that is large and growing, while also being under-served and under-insured. "It's also a difficult market to reach, yielding scarcity value to CNO's 95 percent controlled distribution," the report states. The analyst expects CNO Financial to achieve mid-to-high single digit sales growth, which would translate into enhanced revenue growth of 3-4 percent through 2017, along with 13 percent EPS growth annually for each of the next three years. With regard to CNO Financial's business mix, medicare supplement & supplemental health account for 51 percent of the company's product profitability, while life insurance accounts for 27 percent, fixed annuities for 19 percent and long-term care for 3 percent. The analyst also believes that lower risk health and life products contribute 78 percent to the mix, similar to

, a stock that currently trades at an industry leading P/E. While expressing concern regarding the weak margins and profitability of CNO Financial's long term care business, the analyst also stated that the strong free cash flow generation of the company was the highest among its life insurance peers.