It has been about a month since the last earnings report for Unum (UNM). Shares have added about 1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Unum due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Unum Group Q2 Earnings and Revenues Beat Estimates
Unum Group’s second-quarter 2020 operating net income of $1.23 per share beat the Zacks Consensus Estimate by 3.4%. The bottom line decreased 9.6% year over year.
The company witnessed high mortality in group life, voluntary life, and long-term care due to the pandemic.
Total operating revenues of Unum Group were nearly $3 billion, up about 1% year over year on 1.1% higher premium. The top line beat the Zacks Consensus Estimate by 1.2%.
Net investment income dropped 8.9% to $569 million.
Total benefits and expenses increased 0.7% year over year to $2.7 billion. Rise in interest and debt expense and other expenses resulted in an overall increase in costs.
Quarterly Segment Update
Unum U.S.: Premium income was $1.5 billion, up 1.2% year over year.
Adjusted operating income was down 8.8% year over year to $231.9 million, attributable to lower group disability line of business and group life and accidental death and dismemberment line of business. However, belter result at supplemental and voluntary line of business limited the downside.
Unum International: Premium income declined 0.9% year over year to $157.1 million. Adjusted operating income was $15.1 million, down 50.8% year over year.
Unum UK line of business’ premium income was £111.7 million, up 1.9%, driven by sales growth and the impact of rate increases in the group long-term disability product line. Adjusted operating income, in local currency, of £10.1 million was down 55.5%.
Benefit ratio was 82.5%, down 310 basis points (bps), reflecting lower inflation-linked experience in benefits related to group products and lower claim reserve discount rate to recognize the impact on future portfolio yields from higher-than-normal level of bond calls experienced in the year-ago quarter. However, partially lower claim resolutions due to disruption in claims processes and higher claims incidence in the group life product line were partial offsets.
Persistency decreased in group long-term disability, group life business and supplemental line of business.
Colonial Life: Premium income increased 4.2% year over year to $438.6 million driven by growth in the in-force block resulting from prior period sales growth and stable persistency. Sales decreased 43% to $72.3 million. Adjusted operating income increased 7.7% to $90.9 million.
Benefit ratio improved 70 bps year over year to 50.7%.
Closed Block: Premium income decreased 3.4% year over year primarily due to continued policy terminations and maturities in the individual disability line of business, partially offset by premium rate increases on certain in-force business in the long-term care line of business. Adjusted operating income was $36.7 million, up 8.9% year over year.
Corporate: The segment incurred an operating loss of $58.1 million, wider than operating loss of $43.8 million in the year-earlier quarter.
As of Jun 30, 2020, the weighted average risk-based capital ratio for Unum Group’s traditional U.S. insurance companies was approximately 37%. Unum Group exited the quarter with cash and marketable securities worth $1.6 billion.
Book value per share of Unum Group improved 15% year over year to $51.90 as of Jun 30, 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Unum has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Unum has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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