Conseco Multiple Not Expanding
Conseco, Inc. (CNO) is expected to release its 2Q08 financial results between August 6 and August 16, 2008. The first quarter operating earnings came in at $0.11 per share, much weaker than the estimates, though better than the results of the past few quarters.
We are a bit disappointed with the lower-than-expected results 1Q08 results. While Bankers Life and Colonial Penn segments continued with steady growth and Conseco Insurance Group turned profitable, the losses in the Runoff segment were not preventable. Though management expects better results in future, we remain concerned with the continued weakness in the results for the past few quarters.
While the LTC Runoff block achieved some improvement based on the prior quarter's reserving activities, we are not too optimistic about the prospects for a turnaround in the near future. Ahead of 2Q08 earnings release, considering continuing market overhangs, we are slightly moderating our FY08 and FY09 earnings expectations to $0.96 per share and $1.35 per share, respectively.
At the current price level, the shares of Conseco trade at 0.34x its 1Q08 book value of $24.40 per share (excluding AOCI), a 69% discount to the 1.12x median of the peer group (versus 63% discount at the time of our last report). On a price-to-book basis, this 69% discount looks stretched, given a ROE 90% below the peer group median. We do not expect any significant expansion in the multiple.
Our new six-month target price of $9.00 per share is based on the book value multiple of 0.37x our estimated book value of $24.50 per share at December 31, 2008 and also equates 9.4x our earnings estimate for FY2008. With no dividend in supplement, this target price implies an expected total return of about 7.1% over the period and hence the shares of CNO remain a Hold at present.
CV Therapeutics Big News to Come
Several big regulatory decisions will make 2008 a pivotal year for CV Therapeutics Inc. (CVTX). The first positive one came in April with the approval of Lexiscan for myocardial perfusion imaging. In July, the European Medicines Agency approved its chronic angina drug Ranexa in Europe. However, the biggest decisions are still to come.
The Street is pretty split on CVTX right now. We are in the moderately positive camp, believing that Ranexa will eventually pick up steam after the label expansion(s). We remind investors, there are three separate applications here: one for first-line angina, one for a potential anti-arrhythmic claim, and another for use in diabetics with coronary disease.
The first-line angina supplemental New Drug Application (NDA) and the anti-arrhythmic claim look solid in our view. We are cautious on the full NDA in diabetics because this was a prospective analysis and not a primary statistically powered end point.
