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Here's Why You Should Add Horace Mann (HMN) to Your Portfolio

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Zacks Equity Research
·4 min read
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Horace Mann Educators Corporation HMN is well-poised for growth, riding on transformational actions, profitability initiatives and niche market focus.

The Zacks Consensus Estimate for 2020 and 2021 earnings has moved up 6.7% each in the past 30 days, reflecting analysts’ optimism.  

Return on equity of 7.8% in the trailing 12 months was slightly better than the industry average of 7.7%, reflecting the company’s efficiency in utilizing shareholders’ funds. The company estimates generating more than 9% core ROE in 2020 and double-digit core ROE over the 2021-2025 period.

This Zacks Rank #2 (Buy) largest multiline financial services company serves the U.S. educator market. It noted potential opportunity in the K-12 educator market. An 8% increase in the number of K-12 teachers is anticipated between 2015 and 2027. A demographic shift is expected as baby boomers retire and millennials make up a higher percentage of the workforce. The company is well poised to capitalize on the opportunity given its strategic focus on designing products.

While its Retirement segment benefits from annuity reinsurance agreement that shields it from interest rate risk, the Life segment benefits from Profitable in-force block.

Banking on the strength of its high quality and well diversified investment portfolio, it estimates net investment income in 2020 to be between $340 and $345 million.

The company’s cost-saving initiatives helped lower ongoing operating expense run rate by more than $15 million. It estimates further savings in 2021. This in turn should aid margin expansion.

Given operational excellence, the company raised its 2020 core EPS guidance for the second time this year. It now estimates 2020 bottom line between $2.95 and $3.15, an increase of 40% from 2019.  The Zacks Consensus Estimate of $3.20 is above the guided range. The increased guidance largely reflects higher Supplemental segment’s 2020 core earnings between $37 million and $39 million, up from $31 million and $33 million.

This Zacks Rank #2 (Buy) multiline insurer increased dividend for 12 straight years and targets 5% payout ratio. Its dividend yield of 2.9% betters the industry average of 2.4%, making it an attractive pick for yield-seeking investors.

Shares of Horace Mann Educators have lost 4.4% year to date, narrower than the industry's decline of 11.3%.

 

Nonetheless, shares of the company are trading at a discount than the industry average. Its price-to-book value of 1.01X is lower than the industry average of 1.2X. The stock carries an impressive Value Score of B. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 are the best investment bets.

Other Stocks to Consider

Some other top-ranked companies in the insurance industry are Old Republic International Corporation ORI, Radian Group RDN and The Hartford Financial Services Group HIG, each carrying Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Old Republic International delivered earnings surprise of 51.22% in the last reported quarter.

Radian delivered earnings surprise of 22.93% in the last reported quarter.

The Hartford Financial delivered earnings surprise of 65.91% in the last reported quarter.

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