Unique Focus On Education Market Will Drive Earnings By 2025

Key Takeaways

• Horace Mann's multiyear strategy aims to improve profitability in Property and Casualty through targeted actions, enhancing margins and earnings.
  
• Strong growth in supplemental insurance and unique focus on the education market diversify revenue, driving sustainable returns and shareholder value.
  
• Exposure to catastrophic losses and market challenges threaten Horace Mann's profitability and growth across key insurance and investment segments.

Catalysts

Operates as an insurance holding company in the United States.

• Horace Mann is focusing on reaching target profitability in its Property and Casualty (P&C) segment with a multiyear strategy that involves rate and non-rate actions to improve loss ratios. This is expected to enhance net margins and earnings as they achieve rate adequacy and underwriting profitability by 2025.
  
• The company is actively expanding its agent pool and enhancing digital tools, which has resulted in increased volume in auto and life sales. This strategic investment in distribution channels is anticipated to drive revenue growth as they expect PIF growth in auto by the latter half of 2025.
  
• The company is seeing strong growth in its employer-sponsored supplemental insurance segment, with new partnerships and increasing numbers of covered lives. This diversifies revenue streams and is poised to contribute significantly to overall revenue and earnings.
  
• The commercial mortgage loan investment portfolio is showing signs of stabilization, suggesting potential positive adjustments in investment income. This could provide tailwinds to earnings and counteract previous unfavorable mark-to-market adjustments.
  
• Horace Mann’s strategic focus on the education market and their unique value proposition for educators is expected to support consistent revenue streams and enhance shareholder value, contributing to sustainable growth in return on equity by targeting a double-digit ROE by 2025.

Horace Mann Educators Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Horace Mann Educators's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.6% today to 10.7% in 3 years time.
• Analysts expect earnings to reach $206.6 million (and earnings per share of $5.07) by about December 2027, up from $104.1 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 10.3x on those 2027 earnings, down from 15.8x today. This future PE is lower than the current PE for the US Insurance industry at 12.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.39%, as per the Simply Wall St company report.

Horace Mann Educators Future Earnings Per Share Growth

Risks

• The exposure to hurricane and catastrophe losses, such as the $22.5 million in damages reported due to Hurricane Helene, poses a risk to future earnings and profitability, particularly impacting the Property and Casualty segment and potentially affecting net margins if such events become more frequent or severe.
  
• Challenges in achieving growth and maintaining profitability in the competitive auto insurance market, as suggested by the need for ongoing rate actions and the delay compared to larger competitors, could limit overall revenue growth and impact earnings.
  
• The decrease in core earnings for the Life and Retirement segment, attributed to lower net interest margins and increased mortality costs, poses a risk to sustaining profitability and achieving expected earnings levels for this segment.
  
• Reliance on variable market performance for investment income, especially negative returns in some equity-related funds, may introduce volatility in earnings from the investment portfolio, impacting overall financial stability.
  
• The inherent variability in employer-sponsored group benefits sales, as well as the pressure on sales from larger competitors, may challenge Horace Mann's ability to consistently grow covered lives and associated premiums, potentially limiting revenue growth in this segment.

Valuation

• The analysts have a consensus price target of $44.0 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 2027, revenues will be $1.9 billion, earnings will come to $206.6 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 6.4%.
• Given the current share price of $40.39, the analyst's price target of $44.0 is 8.2% 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.