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Unum's Investment Strategy Shows Potential; UK Biz a Concern

Zacks Equity Research

On Jul 15, we issued an updated research report on Unum Group (UNM).

Over the past few years, the company’s conservative pricing and reservation practices have contributed toward improving its overall profitability. Operating earnings grew 4.7% in the first quarter, marking the highest growth rate since 2011.

Unum’s investment strategy plays an important role in the overall business performance. The investment portfolio, consisting primarily of fixed income securities, is well positioned to mitigate the potential impact of the current economic slowdown on operating results. The company does not have any exposure to subprime mortgages, “Alt-A” loans, or collateralized debt obligations in its asset-backed or mortgage-backed securities portfolios.

Moreover, Unum has consistently enhanced shareholders’ value through dividend increases and share buybacks. The company repurchased $1.9 billion over 16 quarters. With respect to dividend hikes, it has increased its dividend at a 5-year CAGR of 12.3%. Notably, Unum’s dividend yield outperforms the industry average. The above-mentioned initiatives help in retaining existing investors’ confidence in the stock and attracting new investors as well.

Unum also scores strongly with the rating agencies, thereby maintaining creditworthiness in the market.

However, the Unum UK results remained soft over the last few quarters. The performance of Closed Block and Corporate Segment has also been disappointing over past few quarters.

With respect to earnings performance, this Zacks Rank #3 (Hold) accident and health insurer has maintained an earnings streak for the last eight quarters. The company expects 2014 operating earnings to grow in the range of 5%–10% from the 2013 level. The Zacks Consensus Estimate for 2014 is currently pegged at $3.54 while for 2015, it is $3.84 per share. These translate into a year-over-year improvement of 6.7% and 8.5% for 2014 and 2015, respectively.

Other Stocks to Consider

Better-ranked stocks in the insurance sector that warrant a look include Arch Capital Group Ltd. (ACGL), Endurance Specialty Holdings Ltd. (ENH) and Platinum Underwriters Holdings Ltd. (PTP). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on UNM
Read the Full Research Report on ENH
Read the Full Research Report on ACGL
Read the Full Research Report on PTP

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