Unum GroupUNM , a market leader in offering comprehensive insurance solutions to its clients globally, has been maintaining a sustained operational performance over the past many years. The company's continued focus on conservative pricing and reservation practices has led to its overall profitability.
The Accident and Health insurer's growth trajectory pertaining to premium income can be primarily attributable to its steady improvement in the same across the company's line of businesses. With the metric witnessing a four-year CAGR of 3.1%, we expect the momentum to be alive in the near term on the back of the aforementioned driving factor.
Additionally, Unum's largest operating segments, namely Unum U.S. and Colonial Life have been crucial in boosting the insurer's overall performance over a considerable period of time. Better-than-expected performance at these two business lines has been contributing to higher premiums.
Moreover, a constant persistency across the segment's business lines coupled with higher sales volumes benefited Unum U.S. and Colonial Life to a large extent, thereby resulting in operating income growth.
Gradual improvement in interest rates has been driving the company's investment results and we expect better investment income in the future on the back of higher level of invested assets and miscellaneous investment income. However, a possible decline in the yield on invested assets might affect the metric.
Riding on the strength of premium growth and improved investment results, the insurer has been witnessing top-line growth in the last few years (with the metric growing 2.1% over the last four years). In fact, the Zacks Consensus Estimate for current-year revenues is pegged at $11.7 billion, reflecting an increase of 3.6% on a year-over-year basis while for 2019, the consensus mark stands at $12.1 billion, representing a 3.4% rise.
With respect to adding shareholder value, the company has been indulging in shareholder-friendly moves like share buybacks and dividend hikes. In relation to share repurchase, the insurer resumed to buying back shares worth $100 million (quarterly rate) in the fourth quarter and this will help lower its share count that can bolster earnings in the future.
In fact, for this Zacks Rank #2 (Buy) Accident and Health insurer, the Zacks Consensus Estimate for current-year earnings is pegged at $5.22, indicating a year-over-year increase of 21.7% and for 2019, the consensus estimate for the same stands at $5.50, depicting a 5.4% year-over-year rise. Notably, the insurer projects operating earnings to grow between 17% and 23% in 2018.
Regarding dividend hikes, the company approved the same with the metric witnessing a 10-year CAGR of 11%. Such measures reflect the company's strong liquidity position and this initiative not only retains investor confidence in the stock but also attracts new ones.
Even though the company's shares have lost 44.8% year to date, much wider than the industry 's decline of 8.6%, we expect the aforementioned positives to turn the stock around and drive it higher in the near term.
Nonetheless, the stock carries a favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back-tested results have shown that stocks with a VGM Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 (Buy) offer best investment opportunities.
Shares of Unum are trading at a price-to-book multiple of 0.78, lower than the industry average of 1.27. Price to book value ratio is the best multiple for valuing life insurers because of large variations in earnings results from one quarter to the next. This ratio essentially measures a life insurer's current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are profitable picks.
Other Stocks That Warrant a Look
Investors interested in other top-ranked stocks from the insurance industry can also consider Cincinnati Financial Corporation CINF , Atlas Financial Holdings, Inc. AFH and W.R. Berkley Corporation WRB , each carrying a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Cincinnati Financial provides property casualty insurance products in the United States. The company delivered positive surprises in three of the trailing four reported quarters with average beat of 14.49%.
Atlas Financial engages in underwriting commercial automobile insurance policies in the United States. The company pulled off earnings surprises in three of the previous four reported quarters, the average beat being 17.56%.
W.R. Berkley operates as a commercial lines writer in the United States and internationally. The company surpassed estimates in all the preceding four reported quarters, the average being 17.73%.
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