Lincoln Financial (LNC) reports earnings tonight after the bell. Here is the most recent observation by Credit Suisse on the fundamental side (note this was done when LNC was trading around $26.50):
"LNC trades at 7.9x 2010 EPS, in line with peers and 0.75x book value ex. AOCI compared to peers at 0.9x. While LNC doesn't have to refinance its 2011 LOCs this year, we note that if it was to do so, this would add an additional 20 cents of EPS dilution on an annual basis. Though still not expensive, if we factor in this pro-forma dilution, LNC would be at 8.3x, the most narrow discount that the company has traded at since the financial crises began vs. some industry bellwethers like MET (currently 9x 2010 consensus). On a positive note, this transaction makes it more likely that LNC will be able to keep its eventual equity capital raise well below the 50% threshold (vs. the initial $950 million CPP), meaning TARP repayment would likely not be EPS dilutive."
Technically, the stock has a lot support around $22 (see attached daily chart). Also, the implied volatility in Feb is elevated at 65 vs. 57 in March. I like the following calendar spread going into earnings tonight:
- Buy to open March $25 calls
- Sell to open Feb $25 calls
The calendar spread is going for $0.65 as of this writing. The break even range is $22.80 on the downside and $27.60 on the upside (see attached hypothetical P&L chart). I like the odds.
Good luck!
- Sell to open Feb $25 calls
