Innovations In Connected Living And Global Housing Segments Promise Robust Revenue And EBITDA Growth

Key Takeaways

• Expansion in Connected Living and partnerships are set to boost revenue growth and improve market penetration without specifying values.
  
• Strengthened position in Global Housing and sustainability initiatives may enhance brand reputation, contributing to revenue growth and operational efficiencies.
  
• Challenges in auto claims inflation, currency fluctuations, and catastrophe losses pose ongoing profitability risks, despite investments in new capabilities and partnerships for long-term growth.

Catalysts

Provides business services that supports, protects, and connects consumer purchases in North America, Latin America, Europe, and the Asia Pacific.

• Expansion and innovation in Connected Living, especially through partnerships with major U.S. carriers and new customer acquisition, are likely to boost revenue growth and improve market penetration.
  
• Strengthened position in the Global Housing market, with increased scale and operational efficiencies, is expected to positively impact net margins through meaningful expense leverage.
  
• Investments in new partnerships and programs, particularly in the Connected Living segment, have the potential to significantly drive long-term growth, impacting both revenues and adjusted EBITDA positively.
  
• Global Lifestyle's modest growth outlook, coupled with a strategic focus on reducing volatility in the auto business, suggests potential for improved earnings stability and growth.
  
• Enhanced sustainability initiatives, focused on advancing a connected, respected, and protected world, may enhance brand reputation and customer loyalty, potentially contributing to revenue growth and operational efficiencies.

Assumptions

• Analysts are assuming Assurant's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.9% today to 0.1% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $19.79) by about August 2027, up from $797.7 million 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 11.9x on those 2027 earnings, down from 12.5x today. This future PE is lower than the current PE for the US Insurance industry at 13.9x.
• Analysts expect the number of shares outstanding to decline by 2.32% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.99%, as per the Simply Wall St company report.

Risks

• Sustained auto claims inflation and elevated losses within ancillary GAP products have negatively impacted Global Automotive's results, indicating potential ongoing profitability challenges in the auto segment which could affect net margins.
  
• Investments in new capabilities and client partnerships, particularly in Connected Living, are expected to temper Lifestyle segment growth by approximately 3% in 2024, posing a risk to short-term earnings growth expectations despite being critical for long-term growth.
  
• The impact of foreign exchange, inflation, and interest rates fluctuations on Global Lifestyle and particularly Global Automotive segments may continue to affect the pace and timing of growth, potentially impacting revenue and net earnings.
  
• The necessity for ongoing rate increases in the vehicle service contract business due to inflation, and the time needed for these rates to materially impact profitability, introduces uncertainty regarding the timing and magnitude of financial improvement in the segment, potentially affecting net earnings in the near term.
  
• The potential for continuation or escalation of significant catastrophe losses, like those resulting from Hurricane Beryl and other events, despite a robust reinsurance program, presents a risk to expected profit margins within the Global Housing segment due to higher than anticipated claims costs.

Valuation

• The analysts have a consensus price target of $211.8 for Assurant 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 $12.8 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of $193.01, the analyst's price target of $211.8 is 8.9% 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.