On Thursday, Piper Sandler initiated coverage on Unum Group (NYSE: NYSE:UNM) stock, an insurance company providing workplace benefits in the United States, United Kingdom, and Poland, with an Overweight rating and a price target of $57.00.
The firm's analysis indicates a positive outlook for Unum Group within the life insurance sector, emphasizing its focus on underwriting rather than fee or spread earnings.
The new Overweight rating reflects the firm's preference for underwriting-centric companies in the insurance industry, which they believe exhibit the most robust growth potential and least dependence on variable investment income. The firm recognizes Unum Group's competitive advantages, or "moats," which they consider the strongest among peers.
Piper Sandler's valuation approach for Unum Group considers a longer-term perspective, opting for a 10-year price-to-earnings (P/E) average of 7.0 times over a 5-year average of 5.2 times.
This decision takes into account the positive long-term underwriting and growth trends that have emerged for the company's core business, especially following the pandemic.
The firm also notes Unum Group's successful integration with human resources platforms and the broadening of risk transfers as favorable factors. Additionally, the company is experiencing an increase in free cash flow conversion amid a climate of higher interest rates, which further supports the firm's positive stance on the stock.
In other recent news, Unum Group has reported compelling Q1 earnings for 2024, with a significant 13.6% surge in earnings per share and a 6.6% increase in its core operations premium growth.
The insurance firm has also unveiled plans to augment shareholder returns by raising its dividend by 15% and doubling its share repurchase program to $500 million per year.
Despite a slight dip in some product lines, Unum Group continues to express confidence in sustaining its leading industry margins and achieving its annual financial targets.
The company's US division has seen robust margins and persistency in group products, albeit with a decrease in supplemental and voluntary line sales. Unum International, on the other hand, has reported substantial premium growth, with Unum U.K. noting a 15% rise. Despite some areas experiencing slower-than-expected sales, the company remains optimistic about reaching its financial goals for 2024.
These recent developments indicate that Unum Group is on track to maintain its industry-leading margins, grow its top line, and build capital flexibility. The company's capital position remains strong, with a projected Risk-Based Capital (RBC (TSX:RY)) of 415% to 430% and holding company liquidity of over $2 billion anticipated by year-end. Despite expecting long-term care incidents to stay elevated in 2024, Unum Group anticipates a return to normal inventory levels.
InvestingPro Insights
As Piper Sandler initiates coverage on Unum Group (NYSE:UNM) with an optimistic outlook, the real-time data from InvestingPro aligns with this positive sentiment. Unum Group's market capitalization stands at a solid $9.69 billion, reflecting the company's substantial presence in the insurance sector. With a P/E ratio of 7.57, which adjusts to an even more attractive 7.35 over the last twelve months as of Q1 2024, Unum Group's valuation is in line with Piper Sandler's emphasis on the company's strong underwriting focus.
The company's commitment to shareholder returns is evident, as it has not only raised its dividend for 15 consecutive years but also maintained dividend payments for an impressive 38 consecutive years, a testament to its financial stability and consistent performance. Moreover, Unum Group's liquid assets exceed short-term obligations, providing further confidence in the company's financial health. These attributes are critical for investors seeking reliable dividend-paying stocks in the current market environment.
For those interested in deeper insights and additional metrics, InvestingPro offers a range of further tips to help investors make informed decisions. There are 5 more InvestingPro Tips available, including predictions about the company's profitability this year and its performance over the last twelve months. Subscribers can access these valuable insights and more by visiting InvestingPro's dedicated page for Unum Group and using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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