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Citi analysts upgraded Unum Group (NYSE:UNM) shares to Buy from Neutral and double upgraded Reinsurance Group of America (NYSE:RGA) to Buy from Sell in a note to clients.
They wrote that UNM and RGA have “two of the more solid fundamental stories” across U.S. life insurance stocks, on top of being oversold recently. They lifted the firm’s price target on RGA to $158 from $133 and UNM to $53 from $49 per share.
“These names should be outperforming in a market such as this given defensive characteristics including limited balance sheet/earnings risk to structured credit, real estate, and equity markets, as well as more narrow, focused business mixes,” said the analysts.
The firm “strongly recommend” UNM due to its “a) capital-efficient core Group Benefits business which is seeing impressive growth aided by differentiated digital offerings; b) improving free cash flow profile driven by actions to hedge long-term-care (LTC) cash flows & accelerated regulatory reserve additions; and c) negligible exposure to equity markets and structured securities such as CLOs and CMBS.”
On RGA, the analysts stated that after sitting with the company’s CFO Larson and “digging deeper into the story,” they are incrementally positive on growth in the U.S. and Asia.
“Our prior views on earnings volatility and pandemic uncertainty have changed, with natural maturation in the U.S. no longer a subject and an energetic mgmt team. We see benefits from cession rates over time, and pricing tailwinds as RGA adjusts for higher mortality experience. We expect incoming CEO Cheng will bolster growth in Asia, a segment he’s grown for RGA & where returns are higher than in the U.S.,” the analysts added.
