Thursday, June 18, 2009

Lincoln National (NYSE:LNC): Upgraded to Outperform at CSFB

Lincoln National (NYSE:LNC) is getting positive vibes from several tier-1 firms this morning:

- CSFB is upgrading their rating to Outperform from Neutral and moving their price tgt to $24 (prev. $21).

The upgrade comes following LNC’s capital raise and the announced plans to issue preferred stock to the US Treasury. While the planned $950 million of CPP leaves a clear overhang on the shares, given the likelihood of a future equity raise to repay the CPP, the firm thinks the stock is trading at too large of a discount relative to the risk of future dilution and other potential franchise risks associated with having the government as a key stakeholder.

CSFB's main points of distinction vs. the other expected CPP recipient, HIG, are that: 1. LNC’s balance sheet problems are more modest in size for both credit and equity sensitivity, 2. their sense is that there is greater operational and management turmoil at HIG, and 3. they see a clearer path for LNC repaying the CPP within a year or two mainly because we questioned whether they really needed it in the first place. Although CSFB's first preference would have been LNC completing its entire capital raise privately, they believe that LNC’s $2.4 billion capital raise gives them more than enough capital and access to liquidity to weather a sustained economic downturn.

The anlyst notes that initially, they were admittedly hesitant to recommend LNC’s shares given their expectation that Lincoln’s tie-up with the Government will likely run longer than the 8-9 months that stronger banks such as JPM and GS will have been under quasi-government supervision once they pay back their preferreds this month. However based on nearly every qualitative and quantitative measure, LNC’s shares look unjustifiably discounted.

- Merrill Lynch is out saying they see almost 50% upside post capital raise. Lincoln is on target to raise $2 billion of capital which, in combination with other actions, suggests that the risk-based capital ratio would be at least 250% under an extreme bad case scenario for credit losses and the equity market. Bad case scenario looks less likely and mgmt more sanguine. Maintains Buy and $22 tgt.

Notablecalls: Takes guts to play this one to the upside in this environment but if this one gets going it can deliver a full point.

Note that Morgan Stanley was out positive on the name yesterday, calling for s-t upside in the name.

Also, Doug Kass of Seabreeze Partners named LNC his favourite Long yesterday. He has been pretty good with his calls lately so there may be something there after all. At least one would be in good company.


bl said...

And the rest of the insurers rallied: met pru hig. Check out Cramer and the the Healthcare call from Wed!

notablecalls said...

Check out the HIG comments from DB.