Citi Reiterates Buy Rating & $29 PT on Unum Group Following Share Buyback

Citi remains confident in the Unum Group UNM story despite some minor noise in 4Q10 from a reserve addition at Colonial. While Citi has trimmed its 2011E to $2.95, it has also raised its 2012E to $3.35 and 2013E to $3.80. The $1B buyback was 2x Citi's projection and when added to the $144M remaining on the current authorization, equals approx. 14% of UNM's market capitalization. Operating EPS of $0.66 missed its $0.69E which as in line with FC but, after looking through the numbers Citi considered it a reasonable quarter. The benefit ratios at Supplemental & Voluntary, Unum UK and Colonial rose 570 bps, 1210 bps and 490 bps YoY to 81.4%, 71.7% and 53.4%, respectively. However, there was nothing to suggest the development of any adverse trends other than in the discontinued individual long-term care line. Despite the challenges high unemployment and low wage growth pose to increasing revenues, UNM's pricing discipline has produced steady underwriting margins at a time many peers have had deterioration. Careful underwriting and tight expense controls resulted in a consolidated 2010 pre-tax operating margin of 12.8% and ROE of 10.5%. Citi looks for both to rise in 2011. Citi has a $29 PT and Buy rating on UNM UNM closed Wednesday at $25.13