Yesterday, the board of CNO Financial Group Inc. (CNO) announced a $100 million hike in its share repurchase authorization, as a part of its constant endeavor to return value to shareholders. The increased authorization takes the total balance to $130 million from $30 million at 2011-end, when the company had 241 million outstanding shares.
During 2011, CNO Financial repurchased 11.12 million shares at an average price of $6.28 under its $100 million share repurchase program, which commenced in May 2011. The company’s robust capital position enables it to regularly return value to shareholders through share buybacks. The company had a cash balance of $436 million as of December 31, 2011, while the operating cash flow in 2011 amounted to $774.8 million.
Moreover, the strong cash flow is expected to cushion CNO Financial’s financial position from the impact of the cash outflow due to buyback and the consequent debt prepayment, as mandated by the company’s senior secured credit agreement. As per the terms of the agreement, the company is required to make principal prepayment equal to the amount of outflow toward certain restricted payments, including share repurchases, in case its debt-to-total capitalization ratio is over 17.5%.
However, if CNO Financial’s debt-to-total capitalization stays between 12.5-17.5%, principal prepayment of 50% of such amount has to be made, while no mandatory principal prepayment is required when the ratio is below 12.5%. Accordingly, with a debt-to-total capital ratio of 17.1% at the end of 2011, the share repurchases and debt prepayments are likely to have an incremental effect on CNO Financial’s book value and boost its future earnings per share.
On Wednesday, the shares of CNO Financial closed at $7.42, down 1.20%, on the New York Stock Exchange. The company competes with Aflac Inc. (AFL) and Torchmark Corp. (TMK).
Currently, CNO Financial carries a Zacks #4 Rank, which translates into a short-term Sell rating.
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