Irrespective of the economic cycle, the insurance industry is considered relatively stable to invest in, as the need for insurance is imperative. Amid the current uncertain macroeconomic backdrop, investors are all buying into life and health insurance company Unum Group (UNM).
Various types of insurance are required by law to help protect against unforeseen losses. Moreover, insurance companies are now investing in technology and data to enhance the quality of their operations.
Although inflation has eased over the past eight months, the Fed is unlikely to stop the interest rate hikes. Financial companies, which include insurers, benefit from rising interest rates. Although UNM could face short-term unrealized losses, it is expected to benefit in the long run from its investments in long-term bonds due to rising interest rates.
Global investment management firm, Crossmark Global Holdings Inc., announced through its recent disclosure with the SEC that it had raised its position in UNM by 19.8% since the fourth quarter. Also, financial services provider &V Wealth Advisors LLC added UNM to its portfolio by adding 4,975 shares.
UNM missed both the revenue and earnings estimate marginally in the fourth quarter. The company’s President and CEO said, “Our solid fourth-quarter results were driven by higher premiums across our core segments and continued favorable trends in our Group Disability line.”
For fiscal 2023, UNM expects its sales to grow between 8% and 12%, while its premiums are expected to grow between 3% and 5%. The company’s adjusted operating income is expected to grow between 10% and 13%. In addition, its ROE is expected to grow between 17% and 19%.
“We enter 2023 with strong sales momentum and record levels of capital. This positions us well to execute on our strategy of growth while returning capital to our shareholders through dividends and share repurchase,” he added.
UNM paid its shareholders a dividend of $0.33 per share on February 17, 2023. It has increased its dividend for 14 years of consecutive years. Its annual dividend of $1.32 yields 3.37% on the current share price. The company’s dividend payouts have increased at a 5% CAGR over the past three years and a 7.7% CAGR over the past five years. Its four-year average yield is 4.33%.
The stock has gained 15.9% in price over the past nine months and 24% over the past year to close the last trading session at $39.20.
Here’s what could influence UNM’s performance in the upcoming months:
Robust Financials
For the fourth quarter that ended December 31, 2022, UNM’s total revenue increased 0.9% year-over-year to $3 billion. Its adjusted operating income rose 57.5% year-over-year to $286.70 million. The company’s net income increased 75.1% year-over-year to $279.60 million. In addition, its EPS came in at $1.39, representing an increase of 78.2% year-over-year.
For fiscal 2022, UNM’s after-tax adjusted operating earnings rose 40.8% year-over-year to $1.25 billion. Its total revenue came in at $11.99 billion. Its book value per share (excluding AOCI) increased 10.7% year-over-year to $60.45. In addition, its core operations premium increased 2.2% year-over-year to $8.68 billion.
Favorable Analyst Estimates
Analysts expect UNM’s EPS for fiscal 2023 and 2024 to increase 8.6% and 7% year-over-year to $6.75 and $7.21. Its revenue for fiscal 2023 and 2024 is expected to increase 2.8% and 3.4% year-over-year to $12.34 billion and $12.76 billion. For the quarter ended March 31, 2023, UNM’s EPS and revenue are expected to increase 21.2% and 2.1% year-over-year to $1.65 and $3.06 billion, respectively.
Solid Historical Growth
UNM’s EBIT grew at a CAGR of 4.8% over the past three years. Its EPS grew at a CAGR of 7.5% over the past three years. In addition, its net income grew at a CAGR of 6.1% in the same time frame.
Mixed Profitability
In terms of the trailing-12-month Return on Common Equity, UNM’s 12.75% is 14.4% higher than the 11.15% industry average. Likewise, its 2.14% trailing-12-month Return on Total Assets is 85.5% higher than the industry average of 1.15%.
On the other hand, its 0.85% trailing-12-month Capex/Sales is 53.8% lower than the 1.84% industry average. Likewise, its 0.18x trailing-12-month asset turnover ratio is 8.5% lower than the 0.20x industry average.
Discounted Valuation
In terms of forward EV/Sales, UNM’s 0.91x is 53.6% lower than the 1.95x industry average. Its 6.39x forward EV/EBIT is 39.9% lower than the 10.62x industry average. Likewise, its 0.63x forward Price/Sales is 73.4% lower than the 2.47x industry average.
POWR Ratings Show Promise
UNM has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. UNM has a B grade for Value, consistent with its discounted valuation.
It has a B grade for Growth, in sync with solid historical growth.
UNM is ranked first out of 8 stocks in the Insurance – Accidental & Supplemental industry. Click here to access UNM’s ratings for Stability, Sentiment, and Quality.
Bottom Line
Investors’ interest in UNM is justified as the company reported solid fiscal 2022 results. Moreover, the company expects strong growth in sales, premium, and adjusted operating income in fiscal 2023.
Given its robust financials, favorable analyst estimates, solid dividend payouts, strong historical growth, and discounted valuation, it could be wise to buy the stock now.
How does Unum Group (UNM) Stack Up Against its Peers?
UNM has an overall POWR Rating of B, which equates to a Buy rating. This rating is superior to its peers within the Insurance – Accidental & Supplemental Industry, such as Greenlight Reinsurance, Ltd. (GLRE), Assurant Inc. (AIZ), and Employers Holdings Inc (EIG), which all are rated C (neutral).
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UNM shares were trading at $38.39 per share on Tuesday morning, down $0.81 (-2.07%). Year-to-date, UNM has declined -5.68%, versus a 7.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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