Fearing an uncertain financial position at Lincoln National Corp., an analyst today slashed his rating on the insurer with major operations in Hartford.
Citi Investment Research analyst Colin Devine cut his rating on the company that markets itself as Lincoln Financial Group to “sell” from “buy.” He also slashed his earnings estimates for 2009 and 2010. Devine cut his price target on the stock to $5 from $23.
At 11 a.m., Lincoln traded at $7.02, down 5 cents, or 0.7 percent.
“The impetus behind these changes is the company’s increasingly uncertain financial position and erosion of our confidence in its ability to successfully navigate through what continues to be very challenging equity markets within an overall deteriorating macroeconomic climate,” Devine wrote in a research note.
Devine said he is concerned about liquidity and capital adequacy at Lincoln National. In order to remain an independent company, Devine said Lincoln National will need to raise new capital, which is likely to be highly dilutive to current shareholders. The insurer’s ability to raise capital during the ongoing credit crisis will be difficult, he added.
Late last week, Radnor, Pa.-based Lincoln National said it withdrew an application seeking to participate in a government program that would have allowed the insurer to issue government-backed debt. Lincoln National said it did not think it met the requirements for the program. That added to concerns about Lincoln National’s capital position, leading to a sharp decline in its stock price Monday.
Shares rebounded somewhat Tuesday and Wednesday after the insurer said it would be able to pay off upcoming debt maturities without needing to tap the government program.
Lincoln National’s capital base will come under further pressure from mounting investment losses and rising reserve needs for the variable annuity business, Devine said.
Life insurers have been hit hard in recent month by concerns about losses from variable annuities. Sharp declines in the market have investors concerned that the insurers will have to tap reserves to help cover payments on the annuities costing the insurers even more money during a time when obtaining new capital is difficult.
Because of those concerns, Devine cut his 2009 earnings estimate to $1.25 per share from $3.60 per share. He slashed his 2010 estimate to $2.75 per share from $4.10 per share.
Analysts polled by Thomson Reuters, on average, forecast earnings of $3.77 per share for 2009 and $4.18 per share for 2010. (AP)
