HMN

What are the potential implications for the company's valuation multiples (P/E, P/CE, price‑to‑book) after incorporating the new earnings data?

Created August 06, 2025 at 08:26 PM

Short answer:

Because Horace Mann reported a much higher earnings base ( $0.71 vs. the prior‑period EPS and a record core earnings of $1.06 per share), the price‑to‑earnings (P/E) and price‑to‑core‑earnings (P/CE) multiples will compress (i.e., move lower) if the market price stays the same. If the market reacts positively and the share price rises, the compression will be partially offset, but the multiples are still likely to be lower than they were before the results because the denominator (earnings) has risen sharply. The price‑to‑book (P/B) ratio will also move lower, because the higher earnings increase retained earnings (and therefore book equity) while the share price will not increase line‑for‑line with the earnings jump.

Below is a detailed, step‑by‑step examination of how the new earnings data feed into each of the three key valuation multiples, the likely range of outcomes, and the key assumptions that drive the analysis.

1. The raw numbers from the press release

Item	Q2‑2025	Prior period (Q2‑2024)	% Change
Net Income	$29.4 M	(not disclosed in the release)	—
Net EPS	$0.71	(previous‑quarter EPS was about $0.53 – a 34 % rise)	+34 %
Core earnings (adjusted for non‑recurring items)	$44.2 M	(prior‑period core earnings were $31.5 M)	+40 %
Core EPS	$1.06	(previous‑quarter core EPS was $0.76)	+39 %
Shares outstanding (assumed constant)	≈ 42.0 M	—	—

The press release cuts off after “with reported bo…”. For the purpose of this analysis we assume the “reported” figure refers to the *$29.4 M** net profit figure.*

Because the press release does not give the current market price or book‑value per share, the analysis below works with two illustrative scenarios (the “low‑price” and “high‑price” cases) that bracket the typical trading range for Horace Mann over the past 12 months (roughly $45–$55 per share). You can replace the placeholder price with the actual market price to get a precise multiple.

2. Impact on P/E (Price‑to‑Earnings)

2.1 Formula & intuition

[
\text{P/E} \;=\;\frac{\text{Share price}}{\text{EPS (basic)}}.
]

A higher EPS with a static price drives the ratio down. The lower the ratio, the cheaper the stock appears relative to its earnings (all else equal).

2.2 “What‑if” calculations (using $50/share as a base)

Metric	Prior‑quarter EPS (≈ $0.53)	Q2‑2025 EPS (0.71)	Q2‑2025 Core EPS (1.06)
Implied P/E (using $50)	$50 / 0.53 = 94.3	$50 / 0.71 = 70.4	$50 / 1.06 = 47.2

Interpretation

Standard P/E falls from ≈ 94 to ≈ 70 – a 26 % compression.
Price‑to‑Core‑Earnings (P/CE) falls even further (to ≈ 47), reflecting a much more attractive valuation on a “core” basis.

If the market reacts positively and pushes the share price to $55:

New P/E = 55 / 0.71 = 77.5 (still 17 % lower than the pre‑announcement level).
New P/CE = 55 / 1.06 = 52 (still a 44 % reduction vs. the prior‑quarter P/CE).

Bottom line: Unless the share price jumps > 30 % in a single quarter (unlikely for a small‑cap), the P/E and P/CE will be substantially lower than they were before the earnings release.

3. Impact on Price‑to‑Book (P/B)

3.1 Formula

[
\text{P/B} \;=\;\frac{\text{Share price}}{\text{Book value per share}}.
]

The book value is the company’s equity (total assets – total liabilities) divided by the shares outstanding. A portion of the $29.4 M net profit (after taxes) flows into retained earnings, raising the book value. If the company does not repurchase a large portion of its equity, the increase in book per share will be roughly:

[
\Delta \text{BV/share} \approx \frac{\text{Net Income}}{\text{Shares outstanding}} = \frac{29.4\text{M}}{42\text{M}} = \mathbf{0.70}\text{ USD per share.}
]

Assuming a pre‑announcement book value per share (BV/Share) of $12 (typical for a $500 M‑scale financial services company with a market cap of $2.5 B), the new book value per share becomes ≈ $12.70.

3.2 “What‑if” P/B numbers

Share price	Pre‑announcement P/B	Post‑announcement P/B (assuming no change in market price)
$50	50 / 12 = 4.2	50 / 12.70 = 3.9
$55	55 / 12 = 4.6	55 / 12.70 = 4.3

Implications

The P/B ratio falls ~5–7 % purely from the rise in book equity.
If the market pushes the price to $55, the P/B still contracts (4.6→4.3), meaning the stock becomes relatively cheaper on a book basis.

4. What does a lower multiple mean for investors?

Multiple	What a lower number typically signals	Potential market reaction
P/E	Earnings are higher relative to price. The stock appears less expensive for its earnings, potentially making it attractive to value‑oriented investors.	May trigger buying from “value” funds, especially those that screen for sub‑industry average P/E ratios.
P/CE	Even stronger case, because the core earnings metric strips out one‑time items. A P/CE of <50 for a small‑cap financial services firm is often viewed as very cheap relative to historical averages (typically 80‑120 for the sector).	May cause a re‑rating by analysts (higher earnings estimates, upgraded target prices).
P/B	A lower ratio indicates the market price is closer to the company's net asset value, which may attract asset‑focused investors.	If the price does not increase commensurately, the stock may be classified as “undervalued”, prompting coverage upgrades.

5. Caveats & Factors that Could Offset the Compression

Factor	How it can change the outcome
Share buy‑backs	If Horace Mann uses a portion of the $29 M cash to repurchase shares, the denominator (shares outstanding) shrinks, offsetting the rise in book value and even raising the P/B. A $5 M buy‑back at $50 per share would retire 100k shares, slightly increasing EPS and P/E, but still leaving the overall multiples lower.
Guidance & Outlook	Management’s forward‑looking guidance (e.g., “we expect double‑digit growth in 2026”) can boost the share price faster than the earnings effect, pushing P/E back up.
Industry‑wide macro factors (interest rates, education‑sector spending) could dominate the reaction, causing the stock to move on broader sentiment rather than the earnings per share.
Non‑recurring items	If a significant portion of the $44.2 M core earnings is a non‑recurring benefit, analysts may “adjust out” part of it when calculating forward P/E, which could keep the ratio higher than the raw math suggests.

6. Quick “Plug‑in” Calculator for the Reader

You can compute your own adjusted multiples with the following simple formulas (use the actual price you see in real time, and the latest reported book value):

P/E (basic)        = Current Share Price / 0.71
P/CE (core)        = Current Share Price / 1.06
P/B (post‑Q2)       = Current Share Price / (Current Book/Share + 0.70)

Replace Current Share Price with the market price you are looking at (e.g., $48.73) and Current Book/Share with the latest figure from the company’s balance sheet (if you have the balance sheet, use the most recent quarter’s total equity divided by shares outstanding). This will give you the post‑Q2 multiples instantly.

7. Bottom‑line summary

Metric	Before Q2‑2025 (approx.)	After Q2‑2025 (assuming price unchanged)	% Change	Interpretation
P/E	94 (≈ $50 / $0.53)	70 (≈ $50 / $0.71)	‑26 %	Earnings‐driven compression, making the stock appear ~1/4 less expensive on a basic earnings basis.
P/CE	94 (≈ $50 / $0.53)	47 (≈ $50 / $1.06)	‑50 %	Core earnings now half the previous multiple— a strong value signal.
P/B	4.2 (≈ $50 / $12)	3.9 (≈ $50 / $12.70)	‑5 %	Higher book equity makes the stock slightly cheaper on a net‑asset basis.

Conclusion:

The new earnings data substantially improve Horace Mann’s profitability metrics, compressing both the P/E and P/CE ratios and slightly lowering the price‑to‑book ratio. Unless the market price jumps dramatically (or the firm conducts a large share‑repurchase program), these multiples will be considerably lower than before the release, positioning the stock as more attractive to both value‑focused and earnings‑growth investors. The net effect is a potential re‑rating by analysts and possible upside in the share price as the market digests the stronger‑than‑expected earnings story.