Wunderlich Securities Reiterates Its Buy Rating, $50 PT On StanCorp Financial Group

Wunderlich Securities had a meeting with StanCorp Financial Group SFG. SFG concentrated its comments on the group disability insurance business, which represents roughly 85% of its business. In particular, the comments were directed at discussing the claims fluctuations SFG has experienced in the past year. Management's analysis of the claims spikes in 2Q10 and 4Q10 concluded the experience was within a normal range of claims volatility. SFG experienced claims spikes in 2Q10 and 4Q10. Management is confident the cause is not a deteriorating economy but normal fluctuations. This is contrary to the view of SFG's competitors. Time may be the only way to determine if the company's assessment is correct. However, Wunderlich believes management's track record for conservatism and underwriting discipline suggest that the benefit ratio will return to a lower level. the $50 PT is a discount to SFG's historical valuation. However, the valuation is a premium to peers, which are trading at 0.9x 2011E book value. In Wunderlich's opinion, even the revised expectations support the modest premium to book value. Wunderlich's PT is based on SFG's book value growth history and 2011E ROAE of 13.1%. SFG closed Monday at $46