Why Unum Group Was Upgraded At Compass Point

Ken Billingsley of Compass Point upgraded shares of Unum Group UNM on Thursday to Buy from Neutral with a price target raised to $40 from a previous $38.

Billingsley notes that the upgrade is a result of the company's $700 million addition to LTC reserves, a pension plan adjustment that reduces book value by $48 million and a lower future book value adjustment of $30 million related to low-income housing benefits.

The analyst notes that this does reduce the company's 2015 diluted TBVPS (Tangible Book Value Per Share) to $36.34 from a previous $38.49, however shares will trade higher following the removal of the overhang surrounding the LTC reserve charge.

“Since the announcement of the reserve charge and other adjustments, Fitch has affirmed Unum Group's ‘A' rating with a stable outlook, Unum Group's LTC business is in a closed block and unlike other peers that are reviewing their LTC reserves, Unum Group's business model is not dependent on an improving LTC marketplace,” Billingsley wrote.

The analyst revised the company's fourth quarter EPS estimates to $0.82 from a previous $0.86, but maintained the company's full year fiscal 2015 earnings per share estimate at $3.65.