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Bull of the Day: Unum Group (UNM)

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Unum Group (UNM - Free Report) , a Zacks Rank #1 (Strong Buy), has weathered the bear market gracefully this year and is currently hitting new 52-week highs. Part of the Zacks Finance sector, the company sports the highest-possible ‘A’ rating for our Zacks Value Style Score, indicating a strong likelihood that the stock propels higher based on its valuation metrics. The company’s longevity and continued stock price ascent speak to management’s ability to adapt to the ever-changing market landscape.

UNM is part of the Zacks Insurance – Accident and Health industry, which is currently ranked in the top 5% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform over the next 3 to 6 months. Digging a bit deeper, this industry has performed very well (+9.8% YTD) versus the S&P 500 (-10.33% YTD).

Quantitative research studies suggest about half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By targeting stocks contained within leading industry groups, we can dramatically improve our odds of success. Also note the favorable valuation characteristics for this group:

Zacks Investment Research
Image Source: Zacks Investment Research

Company Description

Unum Group provides financial protection benefits solutions primarily in the United States, the United Kingdom, and Poland. UNM provides group long-term and short-term disability, group life, and accidental death and dismemberment products. The company also offers cancer and critical illness, dental and vision, group pension, and voluntary life insurance products.

UNM is ranked as the leading disability income writer and second-largest writer of voluntary business in the United States. The company sells its products through field sales personnel, independent brokers, consultants, and independent contractor agencies. Unum Group was founded in 1848 and is headquartered in Chattanooga, TN.

Earnings Trends and Future Estimates

UNM has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Earlier this month, the company reported Q2 EPS of $1.91/share, a 55.28% surprise over the $1.23 consensus estimate. UNM has delivered a +30.13% average earnings surprise over the last four quarters.

Positive earnings estimate revisions are at the heart of the Zacks Rank. Our research shows that rising earnings estimates are the most powerful force impacting stock prices.

In a sign of strength, analysts covering the insurance company have increased their full-year EPS estimates by +11.79% in the past 60 days. The 2022 Zacks Consensus EPS Estimate now stands at $5.69/share, reflecting potential growth of 30.8% relative to last year. It’s exactly the type of trend we want to look for when narrowing down our list of potential stocks.

Let’s Get Technical

UNM has continued its winning ways this year while the market has been in correction mode. This is the kind of stock we want to include in our portfolio – one with both strong fundamentals as well as technicals. The stock has trended very well year-to-date, advancing over 65%. Only stocks that are in extremely powerful uptrends are able to make this type of price move. We can see below that the 200-day moving average (red line) served as support multiple times in the past year.

Image Source: StockCharts

Both the 50-day (blue line) and 200-day moving average lines are sloping up and the stock continues to make a series of new 52-week highs. Cautious investors may feel hesitant about investing in a stock that has come this far, but the fact is this elite company is still outperforming.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Unum Group has recently witnessed positive revisions. As long as this trend remains intact (and UNM continues to deliver earnings beats), the stock will likely continue its bullish run this year.

Other Factors to Consider

Despite the massive price run, as we can see below UNM is relatively undervalued, irrespective of the metric used:

Zacks Investment Research
Image Source: Zacks Investment Research

Unum Group has consistently enhanced shareholders’ value through dividend hikes and share buybacks. The board approved a quarterly dividend hike of 10% back in May, marking the 13th dividend hike in the last 12 years. The company currently pays a $1.32 (3.35%) dividend.

In October of last year, the company authorized the repurchase of up to $250 million worth of outstanding shares. Through the first half of 2022, UNM bought back $94.9 million worth of stock and expects a $200 million buyback program annually through 2024.

Bottom Line

Solid institutional buying should continue to provide a tailwind for the stock price. UNM is ranked favorably by our Style Score Categories with an ‘A’ for Value and an overall ‘B’ VGM score. Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix.

Backed by a leading industry group and robust history of earnings beats, it’s not difficult to see why this company is a compelling investment. Recent positive earnings estimate revisions should also serve to create a ‘floor’ regarding any sudden or unexpected downside moves. If you haven’t already done so, make sure to put UNM on your shortlist.

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