Markets are open after the long weekend and the battle is already raging between bears and bulls for control of the market direction this month. I want to believe that you have bought AVGO calls based on yesterday’s recommendation. Today, I want to initiate coverage on trading the options of Lincoln National Corporation (NYSE:LNC) as we buy LNC calls.
Lincoln National with its market capitalization of $14.32B is a holding company, which operates multiple insurance and retirement businesses through subsidiary companies. Through its business segments, the Company sells a range of wealth protection, accumulation and retirement income products and solutions.
The chart above shows how shares of Lincoln National have traded in comparison to the S&P 500 within the last one year. You can easily see shares of Lincoln National gaining 31.57% in the last one year compared to gains of 22.27% in S&P 500.
LNC calls caught my attention today after the company traded up 1.03% to make a new 52-week high at $55.85. An RSI of 69.63 then tells me that the buying action on the stock is just getting stronger; hence, I have dug into the company fundamentals to explore the possibilities of more upside potential on the horizon.
I am excited about potential for gains in shares of Lincoln National especially if you consider its undervaluation in relation to its peers in the industry. For instance, Lincoln National has a P/E ratio of 10.6 to mark a 24.52% discount to the industry average of 13.2 and a 71.6% discount to the S&P 500. The company has a Price/Book ratio of 0.9 to mark a 55% discount to the industry average of 1.44 and to mark a 188% to the P/B ratio of 2.6 in the S&P 500.
- Impressive Financials
Another reason to be optimistic about Lincoln National is the quality of its financials as seen in its second quarter (Q2 2014) results released on July 30. The company reported earnings of $1.47 per share to outperform analysts’ expectations of $1.37 and to beat the earnings of $1.27 that was reported in the same quarter last year.
Operating Income was reported at $394M to mark a 12.3% annual increase while the reported net income was up 28.69% annually at $1.48 per share compared to $1.15 per share in Q2 2013. Additional highlights of the second quarter operating details are presented below:
- Consolidated total account balances of $216 billion up 15%
- Annuities total account balances of $121 billion up 18%
- Retirement Plan Services total deposits of $1.8 billion up 12%
- Individual Life Insurance sales of $158 million up 7%
- Group Protection non-medical earned premiums of $528 million up 10%
Diversified Product Base
Lincoln National has four reporting segments namely: Annuities, Retirement Plan Services, Life Insurance and Group Protection. The four segments cater to different demographics and sectors of the economy. The company’s unique selling point of flexibility and guarantee return and withdrawal facilities on its insurance products makes it convenient for the company to increase its total client numbers.
In fact, the company reported growth across three main reporting segments in the second quarter. Operating Income from Annuities grew 16.4% y-o-y to $227M, Operating Income from Retirement Plan Services was steady at $39M, and Operating Income from Life Insurance grew 9.6% y-o-y to $148M.
How to Trade LNC Options
I am bullish on Lincoln National Corporation and I strongly believe that the smartest way to play the options of this company is to buy LNC calls. The LNC Jan 2015 50.000 call (LNC150117C00050000) is surging at an impressive pace and I recommend buying the option now that it is still piping hot at an asking price of $6.35.
— Daily Option Alerts