Why KBW Downgraded Horace Mann Educators

In a report published Monday, Keefe, Bruyette & Woods analysts downgraded the rating on

from Outperform to Market Perform, while raising the price target from $38 to $38.50. The downgrade followed a jump in the company's share price after 1Q15 results. The company's share price has surged by 49 percent since June 2013, versus a 31 percent rise in the S&P 500. Year-to-date Horace Mann's shares are up 10.4 percent, while the S&P 500 has risen merely 2.6 percent during the same period. "We think this impressive performance reflects HMN's significant transformation from a mediocre insurer with an above-average customer profile to a well-executing insurer poised to expand its relevance and fully capture the benefits of its educator focus," the analysts said. The EPS estimates for 2015 and 2016 have been raised from $2.43 to $2.47 and from $2.87 to $2.90, respectively, mostly on lower core loss ratio assumptions. The new target price of $38.50 "fairly reflects HMN's earnings growth trajectory, in our view, but leaves only 5% upside over the next 12 months, driving our move to MP," the analysts explained, while adding, "…we wholeheartedly reiterate our confidence in Horace Mann and its earnings improvement trajectory. The valuation has simply caught up with our favorable outlook."