Seeking Alpha
Growth at reasonable price, deep value, healthcare, tech
Profile| Send Message|
( followers)  

Summary

  • Protective Life’s net income rose 5% over the prior year to $1.33 per share in the second quarter of 2014.
  • After-tax operating income came in at $106.4 million or $1.31 per average diluted share, up 36% from the year-ago period.
  • Earlier I said that the company's earnings will see a CAGR of 10% for the next three to five years, due to stable growth of the company's annuity policies.
  • Although the company’s second quarter earnings confirms my view, I believe the stock is ripe for profit booking.

Protective Life Corporation (NYSE:PL) recently reported its second quarter 2014 earnings. Net income in the quarter came in at $108.0 million or $1.33 per average diluted share, compared to $103.2 million or $1.27 per average diluted share in the second quarter of 2013. The company registered an after-tax operating income of $106.4 million or $1.31 per average diluted share, compared to $77.7 million or $0.96 per average diluted share in the year-ago period.

On June 3 2014, Dai-ichi Life Insurance, one of Japan's biggest life insurers, agreed to buy Protective Life for about $5.7 billion, and the Japanese insurer agreed pay $70 a share in cash. Protective said during its second quarter earnings that the transaction is progressing as expected and the company continues to expect closing the deal in late 2014 or early 2015. As part of the merger agreement, Protective has the right to try and find higher bids through a "market check," which implies that should it decide to break off the deal with Dai-ichi in favor of another suitor, the American insurer would pay a $140 million breakup fee.

In my original article I said that the company's earnings will see a CAGR of 10% for the next three to five years, due to stable growth of the company's annuity policies. The company's annuities segment pre-tax operating income soared to a record $55.3 million in the second quarter of 2014 compared to $36.4 million in the second quarter of 2013. With an aging baby-boomer population, I believe that Protective's annuities segment will continue to drive the company's overall earnings growth. Currently Protective's shares are trading around $70, the price Dai-ichi Life Insurance agreed pay in order to acquire the company. When I recommended Protective Life a year ago, it was trading around $43, and the stock gained 60% since my recommendation. I believe this is an excellent time to sell the shares for booking profit.

Source: Update: Protective Life Earnings