Although Unum Group (currently trading at $80.20 per share) has gained 5.6% over the last six months, it has trailed the S&P 500’s 11.5% return during that period. This might have investors contemplating their next move.
Is there a buying opportunity in Unum Group, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Unum Group Will Underperform?
We're sitting this one out for now. Here are three reasons you should be careful with UNM and a stock we'd rather own.
1. Net Premiums Earned Point to Soft Demand
Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.
Unum Group’s net premiums earned has grown at a 3.1% annualized rate over the last five years, worse than the broader insurance industry and in line with its total revenue.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Unum Group’s revenue to drop by 6.7%, a decrease from its 2.6% annualized growth for the past two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Unum Group’s weak 1.9% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Unum Group, we’ll be cheering from the sidelines. With its shares trailing the market in recent months, the stock trades at 1.1× forward P/B (or $80.20 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d suggest looking at one of our top digital advertising picks.
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