HMN Stock Trades Below 50-Day SMA: What Should You Do Now?

Horace Mann Educators Corporation HMN has been trading below its 50-day simple moving average (SMA), signaling a short-term bearish trend. As of Jan. 8, 2025, its share price was $37.76, down 12.7% from its 52-week high of $43.26

The 50-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as this is the first marker of an uptrend or downtrend. 

With a market capitalization of $1.5 billion, HMN is the largest multiline financial services company focused on America’s educators. It operates in a niche market with a multiline model that provides earnings diversification. Its business mix is balanced between segments.

HMN Trading Below 50-Day Moving Average

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HMN is an Outperformer

Shares of Horace Mann have gained 8.7% in the past three months, outperforming its industry’s  decrease of 2.3%, the sector’s rise of 2.6% and the Zacks S&P 500 composite’s gain of 3.2% in the same time frame.

HMN Vs. Industry, Sector and S&P 500 in 3-Months

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Based on short-term price targets offered by three analysts, the Zacks average price target is $44 per share. The average suggests a potential 15.6% upside from Wednesday’s closing price.

Optimistic Growth Projection for HMN

The Zacks Consensus Estimate for 2025 earnings of $3.82 indicates a year-over-year improvement of 11.1% on 6.1% higher revenues of about $10 billion. The consensus estimate has moved 2.7% north in the past 30 days, reflecting analyst optimism. 

Factors Favoring HMN

Horace Mann serves the educators market and thus bundles home with auto. HMN files for auto rate increase in a well-planned manner.  This, coupled with solid retention, will help it achieve underwriting profitability and deliver combined ratio of 97% to 98% in 2025. Auto premiums represent about two-thirds of property and casualty revenues. HMN stated that it continues to see physical damage trends moderating and expects to reach target profitability in 2025.

Its Life & Retirement results should continue to benefit from strong Life annualized sales as the insurer leverages captive agents to serve customers efficiently. 
In 2024, the Fed cut interest rates three times for a total of 150 basis points after four years. The Fed also hinted at two more cuts in 2025.  Insurers are direct beneficiaries of improved rates as they invest the premiums to meet the contractually guaranteed obligations of policyholders. Thus, rate cuts will likely weigh on investment returns.  Yet, net investment income is expected to benefit from portfolio positioning.

Operational excellence ensures cash flows. The company estimates that it will generate about $50 million in excess capital annually to support growth initiatives, buy back shares and hike dividends.

Notably, its free cash flow conversion has remained more than 100% over the last few quarters, reflecting its solid earnings. It has more than adequate capital to continue to grow its business.

With an expanded and efficient distribution channel, HMN is well-positioned and has significant cross-sell opportunities between worksite product lines.

HMN’s Unfavorable Return on Capital

Return on invested capital (ROIC) has been improving over the last few quarters, reflecting HMN’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 1.2%, comparing unfavorably with the industry’s average of 2.4%. 

HMN’s return on equity (ROE) has also been improving over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. It targets double-digit ROE by 2025.  However, the trailing 12 months ROE was 8.1%, which compared unfavorably with the industry average of 15.3%.

HMN Shares are Cheap

HMN shares are trading at a discount to the industry. Its book-to-price of 1.2X is lower than the industry average of 2.3X. It has a Value Score of A. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer better returns.

The stock, however, is still expensive compared with other players like Brighthouse Financial, Inc. BHF and Lincoln National Corporation LNC.

Parting Thoughts

The K-12 educator market offers substantial growth potential. Horace Mann is poised to grow, banking on strategic initiatives to fuel profitability, niche market focus and a solid capital position. A VGM Score of A instills confidence in the stock.

Its dividend story is impressive. HMN increased dividends for 16 straight years at a CAGR of 14%. Its current dividend yield of 3.6% is higher than the industry average of 2.5%. HMN targets a 50% dividend payout over the medium term. 

Despite unfavorable return on capital, given the affordability of the shares, it is better to add this Zacks Rank #2 stock to your portfolio for better returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

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