Gather Platform And Global Growth Set To Drive Robust Earnings Expansion

Key Takeaways

• Strong group disability and life insurance performance and a share repurchase program are expected to drive significant earnings per share growth.
  
• Favorable macro conditions and growth initiatives in the U.K. and Poland enhance future revenue potential and financial stability.
  
• Declining sales in key areas and high benefit ratios challenge revenue growth, while potential long-term care insurance risks loom over earnings.

Catalysts

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

• Unum Group expects significant EPS growth of 10% to 15% in 2024, supported by strong performance in group disability and life insurance. This growth is likely to impact future earnings.
  
• Favorable macro conditions, such as strong employment rates and higher interest rates, support Unum's business model, potentially enhancing future revenue and overall financial stability.
  
• Ongoing initiatives in international markets, particularly in the U.K. and Poland, demonstrate robust premium growth, which could drive future revenue increases.
  
• The planned increased use of Gather, a platform transforming benefits enrollment and administration, is likely to enhance efficiencies and drive future revenue growth and improved net margins.
  
• A significant share repurchase program, fueled by a robust balance sheet and capital structure optimization, suggests potential for enhanced EPS growth, benefiting future earnings.

Unum Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unum Group's revenue will grow by 4.5% 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 $10.33) by about November 2027, down from $1.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2027 earnings, up from 7.5x 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 3.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.24%, as per the Simply Wall St company report.

Unum Group Future Earnings Per Share Growth

Risks

• Sales for Unum U.S. were down in the third quarter, with notable declines in group disability, which may impact revenue and indicate challenges in achieving full-year sales growth targets.
  
• Colonial Life's sales are expected to be flat for the year, which could affect future revenue growth and profitability if the trend continues.
  
• Persistently high benefit ratios in certain lines, such as voluntary benefits and dental and vision insurance, may continue impacting net margins if no improvements are seen.
  
• Although there is optimism about the fourth quarter sales performance, any failure to meet expectations could impact revenue growth and EPS growth targets.
  
• The uncertainties and potential need for capital transfers related to the long-term care insurance block pose a risk to earnings and may overshadow the overall strength of Unum's franchise.

Valuation

• The analysts have a consensus price target of $74.18 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 $84.0, and the most bearish reporting a price target of just $64.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $14.6 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 6.2%.
• Given the current share price of $72.08, the analyst's price target of $74.18 is 2.8% 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.