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Unum Group Stock Plunges 43.7% YTD: What's Behind the Drop?

Zacks Equity Research
·4 mins read

Unum Group UNM is being affected by lower investment income, higher expenses and lower return on assets. These, in turn, have been weighing on the company’s overall results.

Shares of this Zacks Rank #4 (Sell) multi-line insurer have lost 43.7% on a year-to-date basis, compared with the industry's decline of 31%.

 

The company delivered negative earnings surprise of 2.17% in the last reported quarter.

The Zacks Consensus Estimate for 2020 earnings per share is pegged at $5.20, indicating a decline of 4.2% from the year-ago reported figure.

Factors Impacting Unum Group

Net investment income, one of the components of revenue, declined in first-quarter 2020 by 1.6% year over year due to decline in yield on invested assets, partially offset by higher miscellaneous investment income and an increase in the level of invested assets. Also, the metric is expected to decline due to the current economic conditions. The low interest rate environment will continue to affect yield on invested assets, particularly related to the investment of new cash flows.

Unum Group has been witnessing escalating expenses due to higher benefits and change in reserves for future benefits, interest and debt expense, amortization of deferred acquisition costs and other expenses. In first-quarter 2020, total expenses increased 1.3% year over year to $2.7 billion and net margin contracted 90 basis points (bps) sequentially. Such increase in expenses put pressure on margins.

Moreover, the company’s debt levels remain a concern. Its debt levels have been increasing in the past few years. Also, long-term debt to capital of 25.3% compares unfavorably with the industry’s measure of 20.8%. The company’s times interest earned of 7.8 as on Mar 31, 2020 was poor when compared with the 2019-end figure of 8.8, implying that its earnings are not sufficient to cover interest obligations. Further, it compared unfavorably with the industry’s measure of 16.5.

Performance of the Closed Block segment has been declining over the past few quarters. Adjusted operating revenues in the first quarter declined 4.7% due to lower premium Income and net Investment income. This segment is expected to experience greater volatility across multiple risk factors due to the recent COVID-19-induced financial turmoil. 

Additionally, Unum Group’s trailing 12-month return on assets of 1.7% is lower than the industry’s 2.1%. This highlights the company's inefficiency to utilize its assets to generate earnings.

The Zacks Consensus Estimate for current-quarter earnings has been revised 0.8% downward over the past 30 days.

Stocks to Consider

Some better-ranked insurance stocks include Kinsale Capital Group, Inc. KNSL, AMERISAFE, Inc. AMSF and CNO Financial Group, Inc. CNO. While Kinsale Capital sports a Zacks Rank #1 (Strong Buy), AMERISAFE and CNO Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital provides casualty and property insurance products in the United States. Its earnings beat estimates in two of the last four quarters and missed in the other two, the average positive surprise being 3.44%.

AMERISAFE is an insurance holding company which underwrites workers' compensation insurance in the United States. It surpassed estimates in each of the last four quarters, with the average positive surprise being 50.67%.

CNO Financial develops, markets, and administers health insurance, annuity, individual life insurance, and other insurance products for senior and middle-income markets in the United States. It surpassed estimates in three of the last four quarters, with the average positive surprise being 12.5%.

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CNO Financial Group, Inc. (CNO) : Free Stock Analysis Report
 
Unum Group (UNM) : Free Stock Analysis Report
 
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Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
 
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