Advanced Weather Risk Modeling Will Stabilize Future Earnings

Key Takeaways

• Strategic investments in technology and product enhancements aim to boost revenue growth and strengthen Horace Mann's market position.
  
• Advanced risk modeling and robust underwriting practices are expected to stabilize financial performance and improve net margins.
  
• Natural disasters and severe weather threaten Horace Mann's profitability, while economic changes and investment performance could impact net income and financial stability.

Catalysts

Operates as an insurance holding company in the United States.

• Horace Mann plans to maintain business profitability while strategically investing in driving profitable growth, which is expected to enhance earnings and return on equity. They aim for a core EPS in the range of $3.60 to $3.90 in 2025 with a double-digit ROE, driven by improved net investment income and streamlined operations.
  
• The company is focusing on achieving a mid-90s combined ratio in their Property and Casualty segment by taking necessary rate increases and leveraging advanced weather risk modeling, directly impacting both net margins and earnings.
  
• Investment in technology, including a new customer relationship management platform, is intended to enhance distribution effectiveness and operational efficiencies, thus driving higher revenue and potentially increased net margins.
  
• The introduction of product enhancements, such as the next-generation cancer product in the individual supplemental line, is expected to contribute to revenue growth as well as strengthen the company’s market position.
  
• Horace Mann's efforts in reducing earnings volatility through robust underwriting practices and reinsurance program updates are anticipated to stabilize financial performance, improving net margins and earnings predictability.

Horace Mann Educators Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Horace Mann Educators's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $215.0 million (and earnings per share of $5.33) by about March 2028, up from $102.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.4x on those 2028 earnings, down from 16.8x today. This future PE is lower than the current PE for the US Insurance industry at 14.1x.
• Analysts expect the number of shares outstanding to decline by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Horace Mann Educators Future Earnings Per Share Growth

Risks

• The occurrence of wildfires and other natural disasters can lead to significant direct policyholder losses, impacting Horace Mann's profitability and potentially leading to increased insurance claims expenses. This could affect net margins and earnings.
  
• The company faces ongoing risk from severe weather, which they attempt to mitigate through updated pricing models and terms like increased deductibles for wind and hail-prone areas. However, uncertainty in weather patterns still poses a threat to future earnings stability.
  
• Although they have taken measures to restore profitability in the Property and Casualty segment, any unexpected increase in catastrophe losses or failure of mitigation strategies might adversely affect revenue and earnings.
  
• The ongoing adjustments in commercial mortgage loan funds and limited partnerships indicate potential volatility in net investment income, which could impact overall earnings if these investments do not perform as expected.
  
• Changes in the economic and interest rate environment could negatively affect their investment portfolio, particularly given past underperformance in some areas, potentially impacting their net investment income and overall financial health.

Valuation

• The analysts have a consensus price target of $45.0 for Horace Mann Educators 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 2028, revenues will be $2.0 billion, earnings will come to $215.0 million, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 7.5%.
• Given the current share price of $42.2, the analyst price target of $45.0 is 6.2% 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.