Is it the Right Time to Add Horace Mann (HMN) to Your Kitty?
Horace Mann Educators Corporation (HMN) is poised to gain from niche focus, demographic shift and strategic acquisition.
Horace Mann Educators Corporation’s HMN transformational actions and profitability initiatives, niche market focus, and solid capital position along with favorable growth estimates make it a good investment choice.
Zacks Rank & Price Performance
Horace Mann currently carries a Zacks Rank #2 (Buy). Quarter to date, the stock has gained 9.8%, outperforming the industry and the Finance sector’s increase of 3.1% as well as the Zacks S&P 500 composite’s rise of 6%.
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The Zacks Consensus Estimate for 2021 earnings is pegged at $3.70, indicating an increase of 8.8% on 1.3% higher revenues of $1.3 billion.
The company now estimates 2021 EPS between $3.50 and $3.70, an increase of 15% from $3.00 and $3.20 guided earlier. The increased guidance can be attributed to solid net investment income returns and lower-than-expected catastrophe losses in the second quarter.
Net investment income in 2021 is projected between $385 million and $405 million, up from $370 million and $390 million guided earlier, primary reflecting strong second-quarter net investment income.
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 9.8%, in line with the industry average, reflecting the company’s efficiency in utilizing shareholders’ fund. The company targets core ROE to be above 10% in 2021 and double-digit ROE over the long term.
Earnings Surprise History
The life insurer has a solid track of delivering earnings surprise in the last seven quarters, with the average beat being 22.67%.
The Zacks Consensus Estimate for 2021 and 2022 has moved 1.9% and 1.5% north in the past 30 days, reflecting analyst optimism.
Horace Mann boasts being the largest multiline financial services company serving the U.S. educator market. It noted a solid opportunity in the K-12 educator market. An 8% increase in the number of K-12 teachers is anticipated between 2015 and 2027. A demographic shift is expected as baby boomers retire and millennials make up a higher percentage of the workforce. The company is well poised to capitalize on the opportunity, given its strategic focus on designing products. The addition of Supplemental products enhanced cross-selling.
Its decision to buy Madison National Life Insurance Company will boost its presence in the education market as well as diversify the acquirer’s business profile. The acquisition is estimated to be $7 million to $9 million or 15 to 20 cents per share accretive to Horace Mann’s 2022 earnings. It will also add 50 basis points to return on equity (ROE) excluding net unrealized gains and losses on fixed maturity investments.
The company has been witnessing an increased frequency of fire and non-weather water losses with higher claims. Thus, it plans to file for property rate increases in mid-single digits in many geographies in the second half of the year to navigate the hurdle. It targets a combined ratio between 95 and 96 over the longer term.
Horace Mann has increased its dividend for straight 13 years at a CAGR of 14.6%. Its current dividend yield of 3% is higher than the industry average of 2.1%. It targets a 50% dividend payout over the medium term.
Shares of the company are trading at a discount than the industry average. Its price to book value of 0.94X is lower than the industry average of 1.67X. The stock carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown that stocks with a favorable Value Score, when combined with a solid Zacks, Rank are the best investment bets. Before valuation expands, it is preferable to take a position in the stock.
Other Stocks to Consider
Other stocks from the same space worth considering are American International Group AIG, CNO Financial Group CNO, and MetLife MET, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AIG delivered an earnings surprise of 27.73% in the last reported quarter.
CNO Financial delivered an earnings surprise of 22.22% in the last reported quarter.
MetLife delivered an earnings surprise of 47.20% in the last reported quarter.
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