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By The Motley Fool

The stock market is on a great run, with the S&P 500 trading around all-time highs and up 53% since the bull market began in October 2022.

However, it hasn't been smooth sailing for all stocks. Lincoln National Corporation (LNC -1.78%) is one beaten-down dividend stock selling at a bargain-bin price. Although the stock is up 48% in the last year, it remains 55% below its all-time high price as the company progresses in improving its financial position. Here's why this stock could be an excellent value-stock investment opportunity.

The pandemic weighed on life insurers like Lincoln National

Lincoln National provides insurance and retirement planning through various products, including annuities, life insurance, group non-medical insurance, and defined contribution plans.

The last few years have been tough for the company. In 2020, the COVID-19 pandemic wreaked havoc on the economy, and its ripple effect could be felt across industries. The life insurance industry struggled with soaring claims payouts during the pandemic. According to the American Council of Life Insurers, U.S. life insurers paid $90 billion to beneficiaries in 2020. The 15% increase in claims payouts was the most significant year-over-year change since the 1918 influenza epidemic.

Many life insurers have bounced back in recent years. For example, Aflac and Unum Group are up 292% and 508%, respectively, from the pandemic-era lows in March 2020. Lincoln National, however, has had much more difficulty recovering.

Crucial changes put a dent in its regulatory capital ratios

Lincoln National began bouncing back with its peers throughout 2021, but the stock failed to maintain the positive momentum. Weighing on the business was a drastic change in assumptions surrounding its guaranteed universal life insurance policies.

In the third quarter of 2022, Lincoln National reported a $2.6 billion net loss on $4.8 billion in revenue. The loss was primarily due to a $2.2 billion increase in life insurance reserves, as data showed people aged 75 and older were more likely to keep guaranteed universal life insurance policies than Lincoln National had expected.

The changes affected Lincoln National's risk-based capital (RBC) ratio, a key measure regulators use to determine the minimum amount of capital required for an insurer to support its operations and underwrite coverage. An RBC ratio of 200% is the minimum needed to avoid regulatory action, and Lincoln National holds itself to a much higher standard of 400%.

Following the change in assumption, Lincoln's RBC fell to 377%, spurring management to suspend share buybacks, raise equity capital, and cut expenses. The loss also resulted in a credit downgrade from stable to negative by Fitch Ratings. On top of its struggles, last year, the stock was booted from the S&P 500 index.

Lincoln has made strides in rebuilding its capital

Lincoln National has taken steps to improve its financial position. Last year, the company agreed to sell its wealth-management business to Osaic, Inc. The move should provide a $700 million capital benefit, help improve Lincoln's statutory capital position, and reduce its leverage ratio. The moves are beginning to show dividends. At the end of the fourth quarter, Lincoln's RBC ratio returned to management's goal of 400%.

The company continues to shift its business mix to more profitable ones. During its Q4 earnings call, CEO Ellen Cooper said the company is repositioning “product sales to a more capital-efficient and higher risk-adjusted return mix.” It's also taking steps to reduce costs, cutting its workforce by 5% in February to further streamline operations.

A value-investment opportunity

Lincoln National is priced at a steep discount to its historical value. Its price-to-sales ratio of 0.45 has the stock at rock-bottom prices not seen since the pandemic and the Great Financial Crisis in 2008 to 2009. Over the last two decades, the insurer has traded closer to 0.97 times sales.

Also, its price-to-earnings (P/E) ratio of 3.8 and one-year forward P/E ratio of 4.64 are well below its two-decade average of 13.2. The insurer also sports an attractive dividend yield of 5.9%, above its historical average due to the stock's depressed valuation.

Lincoln National stock has faced significant headwinds over the past few years, but things look like they are turning the corner for the insurer. The insurer has improved its capital position and will continue working toward improving profitability and growing free cash flow over the coming years. This and its dirt-cheap valuation make Lincoln National Corporation an intriguing value stock that investors should consider adding today.

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