Calculated Initiatives And Technology Enhancements Set To Propel Growth In The Group Benefits Market

Key Takeaways

• Strategic initiatives and focus on the group benefits market point towards sustained growth and positive revenue impacts.
  
• Enhancements in technology and a commitment to capital management, including share repurchases, signal confidence in future earnings and sustainability.
  
• Competition, volatility in long-term care claims, interest rate cuts, operational challenges, and reliance on alternative investments introduce risks to growth and profitability.

Catalysts

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

• The successful continuation and positive outlook of strategic initiatives provide a strong foundation for sustained growth, impacting future revenue and earnings positively.
  
• Targeting double-digit growth expectations for 2024, due to robust quarterly performances, indicates potential for continued upward trajectory in earnings.
  
• A focus on exclusive engagement in the group benefits market with natural growth factors, such as an increasing covered employee base and wage levels, could significantly impact revenue growth.
  
• Enhancements in technology and client engagement strategies to deliver industry-leading solutions are expected to boost client growth and retention, impacting revenue and margins positively.
  
• A commitment to prudent capital management and shareholder returns, including a $1 billion share repurchase authorization, signals confidence in business sustainability and could impact earnings per share positively.
  

Assumptions

• Analysts are assuming Unum Group's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.4% today to 0.1% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $9.84) by about August 2027, up from $1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.2x on those 2027 earnings, down from 7.6x today. This future PE is lower than the current PE for the US Insurance industry at 13.6x.
• Analysts expect the number of shares outstanding to decline by 5.04% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Risks

• Increased competition in the group benefits market, particularly from new entrants, could pressure pricing and growth, impacting revenues and margins.
  
• Persistent volatility in long-term care claims incidence, especially if it deviates significantly from long-term expectations, could necessitate reserve adjustments, affecting earnings.
  
• The rate-cutting cycle indicated by forward interest rate curves may pressure earnings growth into 2025, impacting net investment income.
  
• Operational challenges in sustaining exceptionally high persistency levels in core segments could result in decreased premium income over time if not managed adeptly, affecting revenue growth.
  
• Dependence on alternative investment income within the Closed Block segment introduces volatility to earnings, given its sensitivity to market conditions and the performance of underlying assets, possibly impacting overall profitability.

Valuation

• The analysts have a consensus price target of $62.82 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 $70.0, and the most bearish reporting a price target of just $53.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $14.3 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 7.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $54.05, the analyst's price target of $62.82 is 14.0% 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.