We retain our Neutral recommendation on
) given the low interest rate environment, weak results at Unum
U.K. and disappointing sales at Colonial Life. Also, the current
Zacks Consensus Estimate for the second quarter is pegged at 77
cents, representing a slight year-over-year increase of 2.7%. Unum
is scheduled to release its second quarter earnings on August 1
after the bell.
Counting on the positives, Unum is ranked as the leading disability
income writer and the second-largest writer of voluntary business
in the United States. Over the past few years, the company's
conservative pricing and reserving practices have contributed
towards improving its overall profitability.
Its trailing twelve-month return on equity (ROE) of 3.2% is
ahead of its peers, 1.3% of
Lincoln National Corp.
) and a negative ROE of 1.91% of
SeaBright Holdings Inc.
). It expects its operating income per share to grow in the band of
6-12%. Management remains focused on moving to a mix of businesses
with higher growth and stable margin.
Rating affirmations or upgrades from credit rating agencies play an
important part in retaining investors' confidence in the stock as
well as maintaining creditworthiness in the market. Unum scores
strongly with the rating agencies.
Recently, A.M. Best Co. reiterated issuer credit ratings (ICR)
of "bbb" for Unum Group with a stable outlook. The credit rating
agency also affirmed financial strength rating (FSR) of A
(Excellent) with a stable outlook. We believe, the company's strong
ratings scores will keep investors' optimism afloat and help it to
write more business going forward, thereby augmenting the results.
Unum Group has consistently enhanced shareholders value through
dividend increases and share buybacks. During the first quarter of
2012, Unum Group spent $175.2 million to buy back 7.5 million
shares and is left with approximately $349.7 million remaining
under its $1.0 billion share repurchase authorization.
The Board of Directors approved a dividend payment of $0.13 per
share, representing a hike of 23.8% year over year. Following the
dividend hike, cumulative dividend increase since 2007 has been
more than 73%. Its dividend yield of 2.23% is also better than that
of its nearest peers
) with a yield of 0.9% and Lincoln National Corp. with yield of
1.52%. The yield is also significantly ahead of the industry
average of 1.95%.
CIGNA CORP (CI): Free Stock Analysis Report
LINCOLN NATL-IN (LNC): Free Stock Analysis
SEABRIGHT INSUR (SBX): Free Stock Analysis
UNUM GROUP (UNM): Free Stock Analysis Report
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On the flip side, results at Unum U.K. have remained soft over the
last few quarters and the first quarter was no exception. The
company expects competitive pricing coupled with a difficult macro
environment to continue to weigh on premium growth.
Also, sales in the Colonial Life continue to disappoint with
lower-than-expected figures. The segment continues to post
declining operating income. Benefit ratio was also higher in the
A low interest rate environment and the ongoing unemployment
scenario remain as headwinds to the company's operations coupled
with the stricter credit spread for some of the preceding quarters.
The company recorded a non-operating retirement-related loss of
$7.6 million in the reported quarter and management anticipates
these losses to continue for the rest of 2012.
The quantitative Zacks #4 Rank (short-term Sell rating) for the
company indicates slight downward pressure on the stock over the