When StanCorp Financial (SFG) reported its first-quarter 2011 earnings, the company experienced a higher level of claims incidence in group long-term disability business, resulting in a soft performance. We expect delinquencies on commercial mortgage loans to remain modestly high in the foreseeable future.
StanCorp is facing a slowdown in the top-line growth, constrained by economic and competitive forces. Premiums remain pressured due to a group insurance market that continues to reflect a price-competitive sales environment and declines in wage growth and employment levels.
Our six-month target price of $37.00 equates to 8.4x our earnings estimate for 2011. Combined with the annual dividend of $0.86 per share, this target price implies a negative return of about 7.0% over that period. This is consistent with our Underperform recommendation on the shares.