Lincoln National Corporation (NYSE:LNC) shares are down more than -24.94% this year and recently decreased -3.03% or -$1.8 to settle at $57.70. CNO Financial Group, Inc. (NYSE:CNO), on the other hand, is down -32.00% year to date as of 12/06/2018. It currently trades at $16.79 and has returned -9.29% during the past week.
Lincoln National Corporation (NYSE:LNC) and CNO Financial Group, Inc. (NYSE:CNO) are the two most active stocks based on recent trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.Growth
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect LNC to grow earnings at a 11.24% annual rate over the next 5 years. Comparatively, CNO is expected to grow at a 10.00% annual rate. All else equal, LNC’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Lincoln National Corporation (LNC) has an EBITDA margin of 8.49%. This suggests that LNC underlying business is more profitable LNC’s ROI is 4.90% while CNO has a ROI of 5.30%. The interpretation is that CNO’s business generates a higher return on investment than LNC’s.Cash Flow
If there’s one thing investors care more about than earnings, it’s cash flow. LNC’s free cash flow (“FCF”) per share for the trailing twelve months was +1.38. Comparatively, CNO’s free cash flow per share was -0.88. On a percent-of-sales basis, LNC’s free cash flow was 2.07% while CNO converted -3.37% of its revenues into cash flow. This means that, for a given level of sales, LNC is able to generate more free cash flow for investors.Financial Risk
LNC’s debt-to-equity ratio is 0.39 versus a D/E of 1.10 for CNO. CNO is therefore the more solvent of the two companies, and has lower financial risk.
LNC trades at a forward P/E of 6.19, a P/B of 0.83, and a P/S of 0.79, compared to a forward P/E of 7.87, a P/B of 0.76, and a P/S of 0.59 for CNO. LNC is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. LNC is currently priced at a -26.16% to its one-year price target of 78.14. Comparatively, CNO is -30.99% relative to its price target of 24.33. This suggests that CNO is the better investment over the next year.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. LNC has a beta of 1.87 and CNO’s beta is 1.12. CNO’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. LNC has a short ratio of 1.60 compared to a short interest of 1.87 for CNO. This implies that the market is currently less bearish on the outlook for LNC.Summary
Lincoln National Corporation (NYSE:LNC) beats CNO Financial Group, Inc. (NYSE:CNO) on a total of 9 of the 14 factors compared between the two stocks. LNC is growing fastly, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, LNC has better sentiment signals based on short interest.