Over the past six months, Kemper’s stock price fell to $53.87. Shareholders have lost 17.5% of their capital, which is disappointing considering the S&P 500 has climbed by 4.7%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Kemper, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Kemper Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why we avoid KMPR and a stock we'd rather own.
1. Net Premiums Earned Hit a Plateau
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore gross premiums less what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Kemper’s net premiums earned was flat over the last five years, much worse than the broader insurance industry and in line with its total revenue.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Kemper, its EPS declined by 2% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences.If the tide turns unexpectedly, Kemper’s low margin of safety could leave its stock price susceptible to large downswings.
3. Substandard BVPS Growth Indicates Limited Asset Expansion
We consider book value per share (BVPS) a critical metric for insurance companies. BVPS represents the total net worth per share, providing insight into a company’s financial strength and ability to meet policyholder obligations.
Disappointingly for investors, Kemper’s BVPS grew at a tepid 8.8% annual clip over the last two years.
Final Judgment
Kemper falls short of our quality standards. Following the recent decline, the stock trades at 1.1× forward P/B (or $53.87 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at the Amazon and PayPal of Latin America.
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