Unum Group Retained at Neutral - Analyst Blog
September 12 2011 - 8:00AM
Zacks
Unum Group (UNM) continues to benefit
from a declining benefit
ratio, reduced investment losses, improved customer satisfaction
ratings and a disciplined approach to underwriting. The company
possesses a strong capital position and scores strongly with the
credit rating agencies.
However, sluggish economic
recovery will delay new business accrual, exerting pressure on
premium growth. Also, low interest rates are expected to impact
investment income and reserving practices. We thus retain our
“Neutral” recommendation on the company.
Over the past few years,
the company’s conservative pricing and reserving practices have
contributed to its improved overall profitability. Its return on
equity has remained above the industry median for the past couple
of years. Management intends to continue with its disciplined
underwriting approach, which we believe will keep the company out
of trouble and pave the path for long term growth.
A solid balance sheet and
adequate liquidity have helped Unum to increase dividend by 13.5%
during May 2011, marking Unum’s third consecutive year of quarterly
dividend increase. During the second quarter, Unum Group spent
$146.1 million to buy back 5.7 million shares. As of June 30, 2011
the company had approximately $774.8 million remaining under its
$1.0 billion share repurchase authorization. This further reflects
the company’s strong competitive position with respect to its
capital.
Recently, Standard &
Poor's Ratings Services upgraded the outlook to “positive” from
“stable” on Unum Group. The upgraded outlook reflects Unum Group’s
increased diversification, solid operating performance and
statutory capital in excess of regulatory requirement.
On the flip side, weak
performance at Unum U.K. weighed on the overall performance of the
company. The segment posted lower operating income as well as
higher benefit ratio attributable to higher inflation on claim
reserves associated with policies containing an inflation linked
benefit feature, a lower level of claim resolutions in Group
LTD.
Also, At Colonial Life,
higher benefit ratio somewhat offset the growth in premium income.
Also, lower premium income resulted in a decline in Individual
Disability closed block operating income. Since the growth in sales
and premium is dependent on economic improvement and employment
growth, we do not expect much improvement till the economy rebounds
to its historical highs.
Looking forward, for 2011, Unum Group expects operating income
per share to grow in the range of 6% to 12%.
The Zacks Consensus Estimate for third-quarter 2011 is 75 cents
per share. For full years 2011 and 2012, the Zacks Consensus
Estimates are, respectively, $2.96 per share and $3.32 per
share.
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the shares over
the near term.
Headquartered in Chattanooga, Tennessee, Unum Group was created
following the June 1999 merger of Provident Companies Inc. and Unum
Corporation. Along with disability insurance, the company provides
long-term care insurance, life insurance, employer- and
employee-paid group benefits and related services. The company
competes with AFLAC Inc. (AFL), CIGNA
Corporation (CI) and Lincoln National
Corp. (LNC).
AFLAC INC (AFL): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
Zacks Investment Research
AFLAC (NYSE:AFL)
Historical Stock Chart
From May 2024 to Jun 2024
AFLAC (NYSE:AFL)
Historical Stock Chart
From Jun 2023 to Jun 2024