Unum Group (UNM) Well Poised For Growth Amid Headwinds

On Aug 29, 2016, we updated research report on Unum Group (NYSE:UNM) .

Unum Group closed the buyout of Starmount Life Insurance Company early this month. This buyout gives the company access to growth opportunities in the dental market, which is in sync with the company’s strategy to focus more on the employee benefits business. This Zacks Rank #3 (Hold) accident and health insurer has always considered acquisitions to be a prudent strategy to ramp up growth. Also, buyouts bear testimony to the company’s solid capital positon.

A solid capital position backed by sustained favorable operational performance helps in effective capital deployment. An 8% dividend hike approved in May reflects the eight consecutive year of dividend hike. The payout has increased 167% from 2007. Unum Group was also approved $750 million worth share buyback through Nov 2017. These make the stock an attractive pick for yield-seeking investors.

Unum boasts high disability income and is a voluntary business writer in the United States. Over the past few years, the company’s conservative pricing, reservation practices, compelling product and service portfolio have contributed to its overall profitability. Two of the largest operating segments of Unum – Unum U.S. and Colonial Life – have been delivering favorable results over the last several quarters. Hence, the company expects 2016 operating earnings to grow on the higher end of the 3–6% range from the 2015 levels. Recently, Unum Group enriched its portfolio with a new solution under Colonial Life’s newest group hospital confinement insurance plan.

However, a soft performing Unum U.K. remains a concern. While the company anticipates a low interest rate environment to weigh on its earnings improvement, a lower exchange rate will hurt its third-quarter performance. Performances by the Closed Block and Corporate segment have also been disappointing over the past few quarters. Management expects a low interest rate environment and tightening of credit spreads to weigh on its earnings and reserve levels.

Nonetheless, riding high on the positives, the Zacks Consensus Estimate has been witnessing upward revisions as most of the estimates were pulled up in the last 60 days. The expected long-term earnings growth is currently pegged at 7%.

Stocks to Consider

Some better-ranked insurers are Genworth Financial Inc. (NYSE:GNW) , Primerica Inc. (NYSE:PRI) and Sun Life Financial Inc (TO:SLF) . Each of these stocks carries a Zacks Rank #2 (Buy).

PRIMERICA INC (PRI): Free Stock Analysis Report

UNUM GROUP (UNM): Free Stock Analysis Report

SUN LIFE FINL (SLF): Free Stock Analysis Report

GENWORTH FINL (GNW): Free Stock Analysis Report

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