On Sep 15, 2014, we issued an updated research report on Unum Group (UNM).
Unum’s conservative pricing and reservation practices have helped the company to witness the ninth consecutive quarter of a positive earnings surprise. This upside was the result of better performance by the core business, along with a lower share count due to continued share repurchases.
This accident and heath insurer’s two largest operating segments, Unum US and Colonial Life have been reporting increased operating income for the past few years. Both the segments have been witnessing revenue growth, with Unum US recording a rise in mid single digits.
The company’s investment strategy plays a very important role in the overall business performance. Unum’s investment portfolio mainly consists of fixed income securities, which are well positioned to mitigate the potential impact of the economic slowdown on operating results. The company does not have any exposure to subprime mortgages, “Alt-A” loans, or collateralized debt obligations in its asset-backed or mortgage-backed securities portfolios.
Notably, Unum has consistently been enhancing shareholders’ value through dividend increases and share buybacks. The company has repurchased $2.1 billion over 17 quarters. With respect to dividend hike, the company’s payout has increased at a 6-year CAGR of 12.25%. Unum also maintains a dividend yield of 1.85%, outperforming the industry dividend yield of 1.84%.
Unum scores strongly with the rating agencies, based on solid operational results, strong capital position and liquidity, which have helped it to maintain creditworthiness in the market.
However, the Unum U.K. segment remained soft over the past few quarters. The Closed Block and Corporate segment performances have also been disappointing for the past few quarters. The low interest rate environment, coupled with widespread unemployment, continue to weigh on the company’s operations.
Nevertheless, solid performances at Unum US and Colonial Life with marginal improvement in the Unum U.K. and Corporate segments will likely prompt analysts to raise their estimates, resulting in a rank upgrade on the stock.
Riding on the strength of its performance, Unum has been witnessing upward estimate revisions. For 2014, the Zacks Consensus Estimate moved north by 1.4% to $3.59 per share while for 2015, it increased 0.5% to $3.86 per share. The long-term growth is targeted at 8.8%.
Currently, Unum has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the insurance sector that are worth reckoning include Employers Holdings, Inc. (EIG), Fidelity & Guaranty Life Common (FGL) and Amerisafe, Inc. (AMSF). While Employers Holdings and Fidelity & Guaranty Life Common sport a Zacks Rank #1 (Strong Buy), Amerisafe holds a Zacks Rank #2 (Buy).
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