Unum Group: Stock could grow further in 2024 (NYSE: UNM) | Private Equity Weekly

Unam Group (NYSE: UNM) has positive momentum, with the stock up 17.6% year to date. The stock is attractively valued and still has the potential for greater upside in 2024. Unum’s stable revenue and earnings growth have enabled A stable dividend investment.

Unum Group is a $10 billion company that offers a variety of insurance products in the United States, United Kingdom and Poland. Insurance products include: group life, individual life, disability, accidental death and dismemberment (AD&D), dental, vision, accident, disease, cancer and critical illness.

Unum’s U.S. business accounts for 65.5% of total premium income. The department deals with Group Disability, Group Living and AD&D, Voluntary Benefits, Individual Disability and Dental and Vision. The Colonial Life segment accounts for 17.2% and provides accident, illness, life insurance, disability, cancer and critical illness insurance products. The Closed Block, which accounts for 9.1%, includes group and individual long-term care and other insurance products that are no longer sold.unum The international segment accounted for 8.2% of total premium income and consists of Unum’s UK and Polish insurance businesses.

Unum Group’s growth strategy

Unum’s overall focus is to provide critical insurance coverage to financially protect people from unfortunate events such as illness, serious injury and death. Unum tends to focus on marketing its insurance products to employers, offering group insurance plans. This enables the company to acquire a large number of customers, effectively scaling up the business. Unum remains flexible by observing trends and adapting to the changing needs of the market. To this end, the company rewards shareholders with a 2.7% dividend and share buybacks. Unum paid $277 million in dividends in 2023 and repurchased $250 million worth of stock.

Unum also analyzes market conditions and adjusts to changing conditions. For example, as inflation has risen in recent years and the labor market has remained strong, Unum has been able to adjust premiums while maintaining growth. This growth is evident in 2023 premium and annuity revenue increasing 4.5% from 2022 to $10 billion. One downside is that total operating expenses are up 5% in 2023 compared to 2022. As a result, Unum’s final net income fell 8.8% to $1.3 billion from $1.4 billion in 2022.

The good news is that things may be better in the future. Unum is in a strong financial position to thrive in the insurance market. The company’s total assets are 1.2 times its total liabilities, and its total equity is $9.65 billion. Unum’s total investments total $46 billion and its net debt is only $3.5 billion. These investments include $37 billion in debt securities, $3.6 billion in policy loans, $2.3 billion in mortgage loans, $1.4 billion in equity and preferred securities and $1.8 billion in other investments. Unum remains consistently positive operating cash flow. Unum generated operating cash flow of $1.2 billion in 2023. Unum’s strong financial position gives the company the flexibility to grow its business while rewarding shareholders through dividends/share buybacks.

Unum Group receives credit rating upgrade from Fitch Ratings November 2023. Unum raised its financial strength rating on its domestic subsidiaries to “A” from “A-“. The company’s senior debt rating was upgraded to “BBB” from the previous “BBB-” rating.Fitch’s “A” rating indicates high credit quality The risk of default is low. This is the third highest rating from Fitch Ratings after “AAA” and “AA”. A “BBB” rating is considered good credit quality and low default risk. A “BBB” rating is one level below an “A” rating.

Another positive for Unum in 2024 is that the interest rate the insurance company earns on its investments is higher than its portfolio book yield.The benchmark for insurance company portfolio returns is the 10-year Treasury bond yield, which is Currently 4.2% A significant increase from 1.6% in the same period last year Early 2022. Although the Fed is expected to cut interest rates this year, they are cushioned by the fact that money rates lead insurance companies’ book yields. High interest rates will lead to increased investment income. It may take some time for interest rates to drop low enough to have a negative impact on insurance companies.

Attractive valuation

I like to use the price-to-book ratio to value insurance companies because it values ​​stocks based on net assets. In addition to the premiums collected, insurance companies also make money by investing their net assets. Therefore, it makes sense to use the price-to-book ratio. Unum has traded at a historical price/book ratio of 1.07 and a forward price/book ratio of 0.95. Price-to-book ratios near or below one are attractive.This is lower than the life insurance industry Price to Book Ratio 1.49. competitor, Universal Life (GL) has a similar market cap and is currently trading at a higher price of 2.3 per book and a forward price of 1.94 per book.

I also like to use return on equity (ROE) as a measure of an insurance company’s effectiveness because it measures how efficiently profits are generated. Unum’s return on equity is 14%. Globe Life has a higher ROE of 23%. I like to see strong double-digit ROE, and Unum delivers. Unum’s strong double-digit ROE helps increase the company’s market share, leading to a rise in the stock price. However, Global Life’s current advantage lies in its higher ROE. This will allow Globe Life to grow market share faster than Unum. Investors should pay attention to the future trend of the ROE of these companies.

Unum’s growth prospects for 2024 are positive. The consensus forecast for Unum’s 2024 revenue is for growth of 4%, or close to $13 billion. Earnings per share are expected to grow 6% to $8.12. These seem like reasonable expectations if Unum can successfully implement the strategies I mentioned earlier in the article.

Profit is expected to grow 6% in 2024, and operating cash flow is likely to grow this year. Unum looks like it can easily handle a reasonable amount of debt on the back of its positive cash flow. Unum also has the flexibility to continue paying dividends, repurchasing stock and expanding its business. Unum pays a 2.7% dividend, which is helped by Unum’s positive cash flow.

technical perspective

The daily chart above shows a nice uptrend for the stock. The purple RSI indicator (bottom of the chart) has been trading in and out of overbought territory in 2024. The price is currently falling below the overbought zone. Therefore, barring any unexpected negative news, the price may rebound from here to the overbought territory above the RSI 70.

The next earnings report is scheduled for April 30, 2024, which could be the next catalyst for the stock.Analysts expect first-quarter 2024 earnings per share for $1.98. This is 4.8% higher than the $1.89 forecast 3 months ago. That would also be about a 6% increase from first-quarter 2023 earnings of $1.87 per share. Meeting or exceeding this estimate could have a positive impact on Unum’s stock and cause the upward trend to continue. Missing this estimate could cause the current trend to collapse and lead to a sharp correction. Unum’s guidance for the coming quarter will also have an impact on the stock price.

Unum’s long-term outlook

Unum’s lower valuation leaves room for the stock to appreciate this year. The stock is in a strong technical uptrend, which could continue if Unum manages to meet/beat revenue/earnings estimates for most quarters this year.

Unum’s robust strategy has proven effective, with a double-digit ROE of 14%. These strategies can help Unum achieve its growth expectations for 2024 and beyond. Analysts have a one-year price target of $57 for the stock. This is 6% higher than the current price. The price target looks reasonable and is supported by consensus expectations for 2024 earnings growth of 6%.