Digital Capabilities And Customer-Centric Offerings Will Drive Future Sales

Key Takeaways

• Strong free cash flow and enhanced capital efficiency offer opportunities for share repurchases and growth investments, potentially boosting earnings per share.
  
• Projected sales and premium growth, supported by digital initiatives and M&A activities, suggest a robust revenue outlook and potential shareholder value enhancement.
  
• Market pressures and regulatory risks threaten Unum Group's earnings, while international and LTC challenges could affect premium growth and cash flows.

Catalysts

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

• The absence of capital consumption by the Long Term Care (LTC) block in 2024, and no expected need for additional capital in 2025, suggest improved capital efficiency, potentially improving net margins and earnings.
  
• Expected continuation of strong free cash flow generation between $1.3 billion and $1.6 billion in 2025 provides capital deployment opportunities, such as share repurchases and investments in growth initiatives, which could boost earnings per share (EPS).
  
• Projected consolidated sales growth in high single digits, coupled with 4% to 7% premium growth, reflects a strong revenue outlook, driven by digital capabilities and customer-centric offerings.
  
• Anticipated leave management enhancements and integration with HR platforms could reduce costs and improve efficiency, supporting stable margins and earnings growth.
  
• The focus on selective M&A to support growth strategies and regular capital returns via dividends and share repurchases is aimed at enhancing shareholder value, potentially driving EPS growth higher by 8% to 12% in 2025.

Unum Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unum Group's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.8% today to 11.6% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $10.48) by about April 2028, down from $1.8 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 9.6x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the US Insurance industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 6.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Unum Group Future Earnings Per Share Growth

Risks

• There is pressure from supplemental and voluntary lines, causing volatility and potentially impacting the earnings of the group going forward, especially if recovery doesn't occur as expected. (Earnings)
  
• Despite confidence in managing disability claims, changes in market competition or claims experience could adversely affect group disability margins, which have been a key contributor to earnings. (Net Margins)
  
• The need to consistently pursue premium rate increases in the long-term care (LTC) block raises concerns about regulatory risk and market receptivity, potentially impacting future cash flows. (Revenue)
  
• Higher claim incidence rates in the LTC block, which remain elevated from long-term expectations, could lead to worsening of the net premium ratio if this trend continues, despite adjustment efforts. (Earnings)
  
• Earnings power of international segments could be challenged if economic conditions in the U.K. or Poland change unfavorably, impacting Unum's premium and sales growth in these regions. (Revenue)

Valuation

• The analysts have a consensus price target of $93.385 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 $14.3 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 6.2%.
• Given the current share price of $77.31, the analyst price target of $93.38 is 17.2% 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.