Owing to unemployment and sluggish economic recovery that are expected to delay new business accrual and exert pressure on premium growth coupled with low interest rates that are expected to impact investment income and reserving practices, we reiterate out Neutral recommendation on Unum Group (UNM).
Unum’s fourth quarter earnings lagged the Zacks Consensus Estimate due to soft performance at Unum UK and Colonial Life. Unum's U.S. segment, which accounts for a major portion of the company’s premium income, saw the recession unfavorably affect premium growth in 2009. During the most recent quarter, premium income witnessed a modest decline.
Due to the slow economic recovery and continued pricing discipline, we expect only a slight increase in enrollments which will restrict the premium growth. Also, at Colonial Life, we expect a moderate premium growth in the near future due to slower sales trends.
Counting on the positives, despite the ongoing turmoil in the U.S. economy, Unum reported favorable operating results across the majority of its insurance entities in 2010. Over the past few years, the company’s conservative pricing and reserving practices have contributed to its improved overall profitability. Its return on equity has remained above the industry median for the past couple of years.
Also, a solid balance sheet and adequate liquidity have helped Unum to increase dividend and repurchase shares. The company’s annualized dividend yield of 1.41% is substantially higher than its nearest peers and higher than the industry average of 1.12% as well.
With the fourth quarter earning release, Unum proposed a $1 billion share buyback. This amount is in addition to the remaining balance of $144.3 million on its previous share repurchase authorization. During the fourth quarter, the company had bought back 1.2 million shares for $28.5 million.
Looking ahead, Unum Group expects operating income per share in 2011 to grow in the range of 6% to 12%. The Zacks Consensus Estimate for 2011 is $2.96.
Over the last seven and 30 days, none of the analysts covering the stock raised their estimates for the first quarter of 2011. However, one out of 15 analysts covering the stock nudged the estimate downward for the same periods.
Over the last seven as well as 30 days, none of the analysts covering the stock revised the estimates for 2011. For 2012, over the last 30 days, one out of 24 analysts covering the stock raised the estimate. None of them inched up the estimate for 2012.
The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the shares over the near term.
Headquartered in Chattanooga, Tennessee, Unum Group was created following the June 1999 merger of Provident Companies Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. Its major competitors are AFLAC Inc. (AFL), Lincoln National Corp. (LNC) and CIGNA Corporation (CI).