Partnerships, Innovations, And Smart Strategies Power A Bright Future In Insurance And Financial Services

Key Takeaways

• Growth in the Global Housing division, driven by strategic partnerships, could enhance revenue and margins through increased policy growth and expense leverage.
  
• Investments in Connected Living and new automotive measures are expected to stabilize costs and boost revenue, earnings, and net margins.
  
• Elevated claims, foreign exchange impacts, and dependency on reinsurance challenge net margins, while investments and share repurchases may constrain growth and earnings.

Catalysts

Provides business services that supports, protects, and connects consumer purchases in North America, Latin America, Europe, and the Asia Pacific.

• Assurant's growth in the Global Housing division, driven by partnerships and new offerings in response to a hard insurance market, is expected to continue increasing policy growth, enhancing top-line revenue and improving net margins through expense leverage.
  
• Investments in the Connected Living business, including the state-of-the-art device care center and new client launches, are anticipated to contribute positively to future revenue and earnings as these initiatives mature without ongoing investment costs.
  
• Rate increases and risk reduction measures in the Global Automotive division are projected to stabilize claims costs and improve loss ratios, potentially enhancing future net margins and earnings.
  
• Assurant's growing program with Chase in the Financial Services segment and upcoming 2025 opportunities suggest strong potential for revenue expansion, supported by end-to-end service offerings that could improve operating efficiencies and margins.
  
• Continued strong share repurchases and capital efficiencies are likely to bolster adjusted earnings per share (EPS) growth, reflecting Assurant's robust capital position and balanced capital management.

Assurant Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Assurant's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 8.4% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $22.08) by about November 2027, up from $741.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.3x on those 2027 earnings, down from 15.2x today. This future PE is lower than the current PE for the US Insurance industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 1.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.11%, as per the Simply Wall St company report.

Assurant Future Earnings Per Share Growth

Risks

• The elevated claims experience in Global Automotive and ongoing impacts from unfavorable foreign exchange may continue to put pressure on net margins, affecting the overall profitability of Assurant.
  
• The need for continued investments in new partnerships and programs, especially in Connected Living, implies additional expenses, which could impact net earnings if the expected future growth does not materialize as planned.
  
• The reliance on reinsurance and the potential impact of catastrophic events in Global Housing creates uncertainty, which could affect future earnings and lead to increased reinsurance costs, impacting net margins.
  
• Competition and challenges in acquiring voluntary coverage in Global Housing may be cyclical, and if the current market hardening diminishes, it could slow future revenue growth in this segment.
  
• Increased emphasis on share repurchases to inflate adjusted earnings per share could limit cash reserves for investment in growth opportunities, potentially affecting mid
• to long-term net earnings growth.

Valuation

• The analysts have a consensus price target of $229.6 for Assurant based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $13.0 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 6.1%.
• Given the current share price of $219.17, the analyst's price target of $229.6 is 4.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.