Unum (UNM) Stock Could Be 45% Undervalued After LTC Reinsurance Deal

Unum Group has delivered a powerful 5 year run, which puts fresh focus on whether the current share price is properly backed by the returns the insurer earns on its capital. With the stock now reflecting years of gains and a major long term care reinsurance deal completed, investors are asking how much of Unum's capital efficiency story is already in the price.

• Over the past 5 years the stock has returned about 309.4%, so a lot now hinges on whether the underlying returns on Unum's capital can justify that kind of compounding.
• The recent US$3.8b long term care reinsurance transaction reduces more than US$7b of statutory reserves, which may support a cleaner balance sheet and change how efficiently Unum can redeploy capital into higher returning areas of the business.
• Prefer to judge Unum Group on earnings? See why Unum Group's 20.5x P/E tells a different valuation story.

The stock's next move may depend on whether Unum's current valuation is consistent with the returns it is actually earning on its capital today and can realistically sustain.

To compare Unum Group's capital efficiency story with other opportunities, start with a focused screen of 35 high quality undervalued stocks as a research shortcut instead of jumping directly from one headline to the next.

Is Unum Group Still Cheap on Excess Returns?

The Excess Returns model looks at how much profit Unum Group generates above the return that equity investors typically require. With a book value of $68.28 per share and a stable book value estimate of $75.92 per share, the framework suggests Unum could keep compounding its equity base at a measured pace. A stable EPS estimate of $8.62 per share against a cost of equity of $5.49 per share implies an excess return of $3.12 per share, supported by an average return on equity of 11.35%.

Because that excess is positive in the model and the stock trades at $91.03, the setup points to a business that the market may not fully credit for its projected returns on capital. The recent US$3.8b long term care reinsurance deal and related accounting hit help explain why the price can sit below what these implied excess returns support. To see how far the Excess Returns estimate sits above the current share price, use the full valuation breakdown here. Find out what Unum Group could be worth using our Excess Returns estimate.

The Unum Group Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the Unum Group valuation puzzle leaves off. They spell out which paths for revenue, margins and earnings would need to play out for the stock to be worth materially more or less than today. Each narrative ties a fair value to a specific mix of potential catalysts and risks, so you can track over time which version of Unum Group's story is actually unfolding on the Community page.

One of the top community narratives on Unum Group: 11% undervalued

"Unum Group’s ongoing work to shrink and reinsure its long term care block, including the additional US$3.8b of statutory reserves ceded…"

Discover why this Narrative puts Unum Group at 11% undervalued.

Unum Group’s price is only one piece of the decision

Valuation paints an incomplete picture on Unum Group, because the underlying checks have also flagged specific concerns that investors may want to weigh carefully before committing fresh capital. Take a closer look at 2 warning signs before settling on a valuation.

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