Stock of the Week
National Financial Partners
NYSE Symbol: NFP
Industry: Life Insurance
Price as of 6/4: $12.82
The markets had been holding up on the premise that the U.S. economy continues recover and grow, but a very weak employment number out last Friday took the wind out of the sails for many bulls. The Dow is back down toward the lows of the year providing attractive valuations, however it doesn't feel like the worst is over. Can't we go back to April? This week we'll feature a mid cap financial stock. The stock of the week is National Financial Partners. National Financial is an independent financial services distribution company run by Jessica M. Bibliowicz, the daughter of Sandy Weill. That last statement was more impressive 10 years ago. The company offers high net worth individuals and companies throughout the United States and in Canada, solutions across corporate and executive benefits, life insurance and wealth transfer, and investment advisory products and services. It operates a national distribution network with over 150 owned firms. The company operates as a bridge between large financial services products manufacturers and its network of independent financial services distributors. National Financial is not a conservative stock, but a small cap or mid cap stock that has potential to grow once the economy recovers.
Back at the beginning of May, National Financial Partners reported first quarter net income of $7.0 million, or $0.16 per diluted share, compared with a net loss of $515.8 million, or net loss of $12.59 per diluted share in the same period last year. Net income in the first quarter of 2009 included the effects of a $607.3 million impairment associated with the stressed macroeconomic environment. First quarter of 2010 cash earnings were $22.0 million, or $0.50 per diluted share, compared with $18.1 million, or $0.44 per diluted share, in the first quarter of 2009. This improvement was driven largely by revenue increases and margin improvement. Cash earnings is a non-GAAP measure, which the company defines as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets and the after-tax impact of non-cash interest expense. Revenue came in at $225.3 million in the first quarter of 2010, an increase of $8.3 million, or 3.8%, compared with $217.0 million in the first quarter of 2009. Components of the revenue increase included higher revenue from the benefits and investment services businesses somewhat offset by lower revenue from life insurance. Organic revenue grew 4.9% in the first quarter of 2010 compared with the prior year period. Total operating expenses came in at $209.7 million compared with $813.8 million in the prior year period. The first quarter of 2009 included the effects of a $607.3 million impairment associated with the stressed macroeconomic environment. Excluding impairments, operating expenses overall were flat. Cash flow from operations for the first quarter of 2010 increased to $4.9 million compared with a cash usage from operations of $1.6 million in the first quarter of 2009. Outstanding balance on the credit facility was $35.0 million, a reduction of $5.0 million from the balance as of December 31, 2009. In the first quarter of 2010, the Company sold six businesses and recognized a $2.2 million net gain in the first quarter of 2010.
After reading through National Financial Partner's financials, it's obvious that the company is not making a lot of money, but the stock is cheap based a number of metrics. Currently the stock trades for 6 times earnings and 5 times next years earnings. The important thing to realize is the estimates are Non-GAAP numbers so the earnings look better than they actually are. The stock also trades for 0.6 times sales and 1.6 times book value of $8.32 a share. The stock could double and still trade for just over 1 times sales and 10 times earnings. Not bad. As long as the fundamentals continue to improve the stock should perform well for the next several years, but as mentioned this is not a conservative stocks and the fundamentals could be volatile.