In the past 30 days, four analysts have boosted their EPS estimates for this insurance company. The current annual dividend yield is 6.11%, paid quarterly.
Unum Group (UNM)
From Sure Retirement Newsletter
Unum Group is an insurance holding company that can trace its roots back to 1848. The company operates through its Unum US, Unum UK, Unum Poland, and Colonial Life businesses; with these segments providing disability, life, accident, critical illness, dental and vision benefits. The company’s customers are primarily businesses providing benefits to employees.
Unum should generate revenue of about $12 billion in 2020 and has a $3.9 billion market capitalization. Unum reported second-quarter earnings on July 28th, with results coming in stronger than expected on the top and bottom lines. Revenue was up fractionally year-over-year to just over $3 billion. Premium income was 1.1% higher, but this gain was offset by a similarly sized decline in net investment income. Net income came to $250 million on an adjusted basis, or $1.23 per share versus $1.36 in the same quarter last year. Book value ended the quarter at $51.90, up from $45.11 at the same point last year.
Unum suspended its guidance and share repurchase program due to the impact of COVID-19. We now see adjusted earnings-per-share at $5.00 for 2020, which would represent a ~9% decline from last year. The company’s domestic segment is holding up relatively well during the current downturn, but its international business is suffering, posting a halving of operating income in the second quarter.
Competitive advantages are difficult to achieve in the financial services industry as customers are often motivated by price, and switching costs are low. That said, Unum has a solid position in its industry with a long track record of reliable service and establishing deep relationships with customers. We expect Unum to only see moderate declines during the current economic decline.
Over the past decade, Unum grew its earnings-per-share by approximately 8% per year on average. Results were helped by rising premium income, as well as aggressive share repurchases, which retired 5% of the share count each year. The company suspending its share repurchases will be a headwind for future earnings-per-share growth. However, we believe Unum can continue to grow through reasonable improvement in premium and investment income, along with expense management.
We expect Unum to generate adjusted earnings-per-share of $5.00 for 2020. Based on this, the stock has a price-to-earnings ratio (P/E) of just 3.8. During the past decade shares of Unum have traded with an average P/E multiple of 8 to 9. Our fair value estimate is a P/E ratio of 6.0, which implies the potential for a 9.7% tailwind to annual returns over the next five years. In addition, shareholder returns will be driven by expected earnings growth of 2% per year, and the 6.0% dividend yield. Overall, we expect total annual returns of 17.7% per year over the next five years for Unum stock.
Ben Reynolds, Bob Ciura, Josh Arnold, and Samuel Smith, Sure Retirement Newsletter, www.suredividend.com, ben@suredividend.com, October 14, 2020