Shares of Unum Group UNM have been on an uptrend (gaining 19%) since the company announced solid third-quarter results on Oct 26. Shares of Unum Group outperformed the Zacks-categorized Accident & Health industry (up 6.25%).
Why the Stock Should be in Your Portfolio
Unum is the leading disability income writer and the second-largest writer of voluntary business in the U.S. Despite the turmoil in the U.S. economy, Unum reported favorable operating results across the majority of its insurance entities since 2011. While revenues continue to improve (increased at a five-year CAGR of nearly 1%), effective cost control lowered expenses for the company. As a result, net margin expanded 550 basis points over a span on of nearly five years.
Moreover, the company’s conservative pricing and reservation practices have contributed to its overall profitability over the past few years. The company has raised rates to offset the interest rate pressure. Management estimates Unum US sales growth in 2016 to be between 2% and 4%. It also expects sustained persistency and sales improvement in existing client relationships to keep up the momentum.
Unum Group has been deploying capital effectively in shareholder-friendly moves. With the 8% dividend increase this May, which marks the eighth consecutive increase, the insurer has increased dividend by 167% from 7.50 cents paid in 2007. Unum Group engages in share repurchase regularly and has already bought back shares worth $3.5 billion since the fourth quarter of 2007. Backed by a solid balance sheet with sufficient liquidity and strong cash flows, Unum Group is well positioned to enhance shareholders value going forward.
Banking on operational strength, Unum Group expects 2016 operating earnings to grow at the higher end of the 3–6% range from the 2015 level.
Recently, Zacks Investment Research upgraded Unum Group to Zacks Rank #2 (Buy). The company has seen its 2016 estimates moving north by nearly 1% over the last 60 days. Unum Group delivered positive surprises in the last four quarters with an average beat of 4.59%. The long-term expected earnings growth is pegged at 7%, better than the industry average of 6.5%. Also, the price earnings growth ratio, which determines the relative trade-off between the price of a stock, the earnings generated per share, and the company's expected growth, is 1.55 as against the industry average of -0.71.
Other Stocks to Consider
Other well-ranked insurers include Alleghany Corporation Y, Employers Holdings, Inc. EIG and Trupanion, Inc. TRUP.
Employers Holdings, which provides workers' compensation insurance to small businesses in low to medium hazard industries in the U.S., surpassed estimates in three of the last four quarters with an average positive surprise of 27.32%. The company sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Trupanion, which provides medical insurance plans for cats and dogs on monthly subscription basis in the U.S., Canada, and Puerto Rico, surpassed estimates in the last four quarters with an average positive surprise of 31.45%. The company carries Zacks Rank #2.
Alleghany Corporation, which engages in P&C reinsurance and insurance businesses in the U.S. and internationally, beat estimates in three of the last four quarters with an average positive surprise of 20.52%. The company sports Zacks Rank #1.
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