LNC - Morgan Stanley steps to sidelines on Lincoln National due to $2.2B charge in Q3

• Morgan Stanley analyst Nigel Dally downgraded Lincoln National ( NYSE: LNC ) to Equalweight from Overweight after the insurer took a $2.2B charge in Q3 for deferred acquisition cost and reserve assumptions, primarily due to updated guaranteed universal life insurance lapse assumptions.
• "Investor confidence in the stock was already wavering following an outsized negative impact to its results throughout the pandemic. To see a charge of this magnitude follow we expect will undermine confidence for some time," Dally wrote Thursday in a note to clients.
• Indeed, Lincoln National ( LNC ) stock plunged 30% in Thursday morning trading, showing investors' were shaken by the charge.
• "From a capital perspective, this (charge) will hit statutory capital by $550M, driving its RBC (risk-based capital) ratio to a level that we view as being vulnerable," the analyst said.
• As a result, Dally expects the stock to trade in a range of 5.5-6.5x forward estimates due to the uncertainty over its earnings power and capital. As such, he lowered his price target on LNC by $14 to $54, or 5.7x.
• Earlier, Lincoln National ( LNC ) down as notable items impact earnings negatively

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