The Federal Reserve has already hiked interest rates twice in 2022, and the market expects more increases later this year to fight multi-decade high inflation. The rising interest rate environment is generally favorable for many companies in the financial sector, especially banks. That’s because higher interest rates help banks generate more interest income.
Investors’ interest in the financial sector is evident from the ProShares Short Financials ETF’s (SEF) 5.9% returns over the past month. In addition, according to Statista, revenue in banking, finance, and insurance is projected to grow at a 2.4% CAGR from 2022 to 2025.
Therefore, we think fundamentally strong financial stocks Unum Group (UNM) and First BanCorp. (FBP), could be solid additions to one’s portfolio now. They have handily outperformed the S&P 500 year-to-date.
Unum Group (UNM)
UNM and its subsidiaries provide financial protection benefit solutions primarily in the United States, the United Kingdom, and Poland. The Chattanooga, Tenn.-based firm operates through Unum US; Unum International; Colonial Life; and Closed Block segments.
On May 5, 2022, President and CEO Richard P. McKenney said, “The current business environment is favorable for our company, with higher interest rates and a strong labor market resulting in an improved earnings outlook.”
UNM’s premium income came in at $2.40 billion for the first quarter, ended March 31, 2022, compared to $2.38 billion in the year-ago period. Its adjusted operating income was $342.60 million, up 25.3% year-over-year. Also, its net income was $253.50 million, up 65.7% year-over-year, while its EPS came in at $1.25, up 66.7% year-over-year.
UNM’s revenue is expected to grow 2.3% year-over-year to $12.34 billion in 2023, and its EPS is expected to grow 24.5% to $1.27 for the quarter ended Sept. 30, 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 42.8% in price year-to-date and 6.7% over the past month to close yesterday’s trading session at $35.08.
UNM has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
In addition, it has a B grade for Growth and Value. UNM is ranked first of 9 stocks in the Insurance – Accident & Supplemental industry. Click here to see the additional POWR Ratings for UNM (Momentum, Stability, Sentiment, and Quality).
First BanCorp. (FBP)
FBP in San Juan, Puerto Rico, operates as the bank holding company for FirstBank Puerto Rico that provides a range of financial services to retail, commercial, and institutional clients. The company operates in six segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations.
On April 28, 2022, Aurelio Alemán, FBP’s President and CEO, said, “We are very pleased to announce a new $350 million share repurchase program to be executed through the next four quarters and an increase in the quarterly dividend to $0.12 per share.”
FBP’s adjusted non-GAAP net income increased 19.8% year-over-year to $82.60 million for the quarter ended March 31, 2022. Its adjusted non-GAAP EPS came in at $0.41, up 32.3% year-over-year. And its net interest income was $185.62 million, up 5.3% year-over-year.
Analysts expect FBP’s revenue to be $856.63 million in 2023, representing a 9.6% year-over-year rise. The company’s EPS is expected to increase 14.4% per annum for the next five years. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 3.4% in price year-to-date and 9.1% over the past month to close yesterday’s trading session at $14.25.
FBP has a B grade for Momentum and Sentiment. It is ranked #32 of 94 stocks in the B-rated Foreign Banks industry. Click here to see the additional POWR Rating for Growth, Value, Stability, and Quality for FBP.
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UNM shares were trading at $35.87 per share on Thursday morning, up $0.79 (+2.25%). Year-to-date, UNM has gained 49.10%, versus a -14.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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