Here's Why Unum (UNM) Stock is an Investor Favorite Now
Unum Group’s UNM shares have gained 16.5% year to date, compared with the industry’s increase of 4.7%, the Finance sector’s increase of 3.9% and the Zacks S&P 500 composite’s rise of 9.3%. With a market capitalization of $10.1 billion, the average volume of shares traded in the last three months was 1.5 million.
Disciplined sales trends, strong persistency, an improving rate environment, favorable risk experience and solid capital continue to drive this Zacks Rank #2 (Buy) insurer’s performance.
Earnings of this leading disability income writer have increased 9% over the last five years, outperforming the industry average of 3.8%. UNM delivered a four-quarter average earnings surprise of 5.19%.
It has a VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum. Back-tested results have shown that stocks with a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 offer better returns.
UNM’s return on invested capital (ROIC) has been increasing over the last few quarters, reflecting its efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 9.3%, better than the industry average of 8.2%.
UNM estimates the adjusted operating return on equity (ROE) between 12% and 14% from the core business in 2024.
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Can UNM Retain the Momentum?
The Zacks Consensus Estimate for 2024 earnings is pegged at $8.18, indicating a year-over-year increase of 6.8% on 4.2% higher revenues of $13 billion. The consensus estimate for 2025 earnings is pegged at $8.78, indicating a year-over-year increase of 7.3% on 3.5% higher revenues of $13.4 billion. Unum expects 7%-9% growth in adjusted operating EPS by 2024 and 8-10% growth in the long term.
The consensus estimate for long-term earnings growth rate is pegged at 8.3%, better than the industry average of 7%. We expect the 2026 bottom line to witness a three-year CAGR of 8%. UNM is poised to grow on the strength of operational excellence of its two largest operating segments — Unum U.S. and Colonial Life.
Unum U.S., contributing about two-thirds of the insurer’s premium, should continue to benefit from disciplined sales trends, strong persistency in group lines and growth of new product lines like dental and vision. Management estimates sales growth of 5-10% and premium growth of 5-7% in 2024. We expect 2026 premiums to witness a three-year CAGR of 4%.
Improving premium income and favorable risk results should drive the Colonial Life segment. Management remains focused on moving to a mix of businesses with higher growth and stable margins. Colonial Life expects sales growth in the range of 8-12%, premium growth in the range of 2-4% and adjusted operating ROE in the range of 20-22% in 2024. We expect 2026 premiums to witness a three-year CAGR of 2.8%.
Unum’s in-force block growth and higher sales have been driving premiums. We estimate 2026 premiums to witness a three-year CAGR of 4%. Unum Group expects sales growth in the range of 7-10% and premium growth in the band of 5-7% in 2024. It expects sales growth in the range of 8-12% and premium growth in the range of 4-7% for the long term.
Banking on solid performance, Unum Group enjoys a solid capital position. Sustained solid operating results have been fueling a solid level of statutory earnings and capital, cushioning financial flexibility. Strong statutory earnings are expected to provide an impetus to dividend capacity.
As part of its capital payout policy, UNM has hiked dividends 13 times in the last 12 years. Also, UNM expects to repurchase $500 million worth of shares in 2024. The insurer expects to hike dividends by 10%-15% per year over the five-year period.
Attractive Valuation
The stock is trading at a price-to-book value of 1.1, lower than the industry average of 1.8. It has a Value Score of A. This style score helps find the most attractive value stocks. Back-tested results have shown that stocks with a Value Score of A or B and a Zacks Rank #1 or 2 offer better returns.
Other Stocks to Consider
Some other top-ranked stocks from the insurance space are Axis Capital Holdings AXS, The Mercury General MCY and Palomar Holdings PLMR, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Axis Capital delivered a trailing four-quarter average earnings surprise of 102.57%. The stock has gained 15.2% year to date.
The Zacks Consensus Estimate for AXS’ 2024 and 2025 earnings indicates an increase of 3.1% and 10.1% from the year-ago levels, respectively. The expected long-term earnings growth is 5%. The consensus estimate for 2024 and 2025 earnings has moved up 0.5% and 0.1%, respectively, in the past 30 days.
Mercury General’s earnings surpassed estimates in three of the last four quarters while missing in one. The stock has gained 31% year to date.
The Zacks Consensus Estimate for MCY’s 2024 and 2025 earnings implies a rise of 866.7% and 34.5% from the prior-year levels, respectively.
Palomar’s delivered a trailing four-quarter average earnings surprise of 11.23%. The stock has gained 48.2% year to date.
The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings implies a rise of 16.3% and 18% year over year, respectively. The consensus estimate for PLMR’s 2024 and 2025 earnings has moved up by 1 cent and 2 cents, respectively, in the past seven days.
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