What a brutal six months it’s been for Kemper. The stock has dropped 27.6% and now trades at $28.10, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Kemper, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Kemper Will Underperform?
Despite the more favorable entry price, we don’t have much confidence in Kemper. Here are three reasons we avoid KMPR, plus one stock we’d rather own.
1. Declining Net Premiums Earned Reflect Weakness
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 net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Kemper’s net premiums earned has declined by 1.8% annually 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 17.5% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Substandard BVPS Growth Indicates Limited Asset Expansion
Book value per share (BVPS) serves as a key indicator of an insurer’s financial stability, reflecting a company’s ability to maintain adequate capital levels and meet its long-term obligations to policyholders.
To the detriment of investors, Kemper’s BVPS grew at a sluggish 5.8% annual clip over the last two years.
Final Judgment
We see the value of companies helping consumers, but in the case of Kemper, we’re out. Following the recent decline, the stock trades at 0.6× forward P/B (or $28.10 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at one of our top software and edge computing picks.
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