Life Partners Holdings, Inc. (LPHI)
Recent Price: 8.24
P/E: 5.0
Current Yield: 12.62%
The Skinny
There’s a saying that life insurance is great. The downside is that you have to die to see the benefit. LPHI to the “rescue”! Seriously, though, the company is in a unique financial services niche in that they purchase life insurance policies from holders at a discount to the face value.
Let's say, God forbid, you’re terminally ill and would like to use money from your insurance policy’s death benefit (DB). LPHI might purchase it at say 60 or 70 cents on the dollar from you. If the DB is $300,000, you’d get $180,000 to $210,000. You might leave some on the table. But that’s the trade off. If you really need the money or want it to take the round the world trip you’ve always wanted to take, that was facilitated. And..when you get closer to the light, LPHI gets the $300,00: A nice little 30 or 40% ROI. An oogie business? Yes indeedy. But the numbers are worth a look. ROE is a massive 54.9%. Low to no debt. 8.2% EPS growth assisted by 9% earnings growth. The pay out ratio is unassuming at 54%. Not bad. The stock price is almost 58% off of it’s 52 week high. The business might be creepy, but there might be some value there as well.
The Danger
While LPHI has turned in some consistently good reports, Q3 2010 saw a 15% decrease in net income. Not a good trend. Also, the business has done well partially due to the low rate environment. As rates tick up, who knows? And let’s face it, it’s kinda like buying a tobacco company, there’s a bit of scary dance with the devil to it. Most glaringly though is an SEC investigation that the Wall Street Journal reported in late January which the company has confirmed. Naturally, an SEC probe is always followed by the class action lawsuits and more than a handful are popping up. Maybe those numbers ARE too good to be true. Dance at your own risk.
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