Operational Efficiencies And Digital Integration Will Drive Future Success

Key Takeaways

• Unum's investments in digital platforms are expected to drive customer engagement and premium growth, enhancing margins and operational efficiencies.
  
• Strategies in claims recovery and capital management are set to improve earnings, supporting profitability and shareholder value in challenging conditions.
  
• High disability claims and decreased persistency could pressure profit margins and slow revenue growth, with sales variability adding revenue volatility concerns.

Catalysts

Provides financial protection benefit solutions in the United States, the United Kingdom, and Poland.

• Unum's digital interactions and investments in platforms like leave management and HCM integrations are expected to enhance customer engagement and persistency, driving future premium growth and improving net margins as operational efficiencies increase.
  
• The ongoing focus on core operations with premium growth of 4.2% in Q1 and a pipeline that suggests growth of 5% to 10% for 2025 indicates expectations for increased revenue and profitability.
  
• Continued operational improvements in claims recoveries in the disability segment are anticipated to sustain higher margins and positively impact earnings, even in less favorable macroeconomic conditions.
  
• Unum's strategy to actively manage the closed block, including ongoing reinsurance transactions and interest rate hedging, is expected to enhance capital efficiency, potentially contributing to better margins and stronger earnings.
  
• The commitment to capital deployment, including share buybacks and dividends, positions Unum to enhance earnings per share as statutory earnings remain strong, supporting shareholder value increases.

Unum Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unum Group's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.3% today to 11.6% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $10.77) by about May 2028, up from $1.6 billion 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 9.3x on those 2028 earnings, up from 8.8x today. This future PE is lower than the current PE for the US Insurance industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.34%, as per the Simply Wall St company report.

Unum Group Future Earnings Per Share Growth

Risks

• The high incidence of disability claims observed in the first quarter could impact profit margins if it turns into a sustained trend, affecting earnings.
  
• Decrease in persistency levels from record highs, even if anticipated, could lead to slower revenue growth if historical levels do not improve with digital integration.
  
• Variability in sales, particularly the decline in the International segment and softness in group lines, may create revenue volatility and impact confidence in meeting growth targets.
  
• The benefit ratio in group disability increased, and if incidents continue to rise beyond current expectations, it could pressure margins and earnings.
  
• Lower-than-expected returns on the alternative asset portfolio, used to support the long-term care block, may lead to financial shortfalls if returns do not normalize, impacting net margins.

Valuation

• The analysts have a consensus price target of $93.231 for Unum Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $108.0, and the most bearish reporting a price target of just $76.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.5 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 6.3%.
• Given the current share price of $79.49, the analyst price target of $93.23 is 14.7% higher.
• 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.