B. Riley FBR Upgrades Unum Group On Solid Macro Backdrop, Valuation

Unum Group UNM stock has pulled back 16 percent from its early January high, and are in the process of defending its 200-day moving average.

The Analyst

B Riley FBR analyst Randy Binner upgrades Unum Group from Neutral to Buy and increased his price target from $55 to $58.

The Thesis

The U.S. group benefits segment, fetching 65 percent of Unum Group's operating EBIT, is seeing across-the-board tailwinds, Binner said in a note. The analyst said group products price off payrolls and claims activity tends to be controlled in a good economic environment.

"Furthermore, there has been M&A in the group space, which is supportive to intrinsic valuation," Binner said.

The analyst expects elevated claims in the U.K. segment, contributing 10 percent to overall EBIT, as Brexit dampens the London employment picture. Meanwhile, the Colonial segment, accounting for 20 percent of EBIT, is a growth area, as major medical costs rise for most Americans, the analyst said.

B Riley FBR sees the legacy LTC run-off at Unum, contributing less than 10 percent of EBIT, to be a major cause of concern. That said, the moving higher of the yield curve would help Unum defease long-term care liabilities, and the significant LTC reserve charges at General Electric Company GE appear to be specific to GE, according to B Riley FBR.

"In short, this is a solid macro backdrop for UNM and valuation at 9.1x 2019E EPS presents good risk reward," Binner said.

The Price Action

Unum shares have added about 7 percent over the past year, although they've lost about 8 percent since the start of 2018.

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