The world is undergoing massive digital transformations on a global scale and smart devices are no longer limited to mobile phones. Today, you can find smart TVs, refrigerators, and vehicles like the Internet of Things (IoT) connects more devices than ever.
According to a study by market research firm Facts and Factors, the global IoT market is expected to grow at a CAGR of 24.5% through 2028. This IoT market is where the insurance specialist securing (AIZ -0.44% ) sees an opportunity. The company has carved out a profitable niche by offering insurance for the digital economy, and the growth it is experiencing is exciting investors, which is generating landslide returns for the market.
Protect the digital economy
Assurant is a niche sure company focused on bringing solutions to the connected economy. Assurant offers specialized insurance coverage, like extended warranties, for everyday digital products like phones, appliances, and vehicle protection. It also provides coverage for properties owned by the lender for things like homeowners insurance and flood insurance. His main source of money is the premiums collected from insurance policies and guarantees and the interest earned on his investments.
Assurant’s business has evolved from selling employee benefit coverage and preneed life insurance policies. It has broken away from these types of coverage in recent years to fully embrace its role in ensuring the connected economy.
10 years of superior performance
What’s most impressive about Assurant is its outperformance over the past decade, a testament to the company and how well it has served the digital economy.
The decade has not been entirely smooth. In 2017, Assurant experienced a temporary drop in revenue and net profit as it sold its employee benefits business and managed claims losses related to Hurricanes Harvey and Irma that year. Since then, Assurant has increased net earned premiums to $8.6 billion, generating a compound annual growth rate of 18%.
Management sees these tailwinds for the business
Management is optimistic about Assurant’s future growth, as the digital world presents a tremendous opportunity. One of its main products is the protection of mobile devices, and it has a network of locations where customers can repair their devices or even exchange them for the latest models.
Management sees tailwinds that could drive this business, including the rising costs of mobile devices and the growing importance of devices in people’s everyday lives. Assurant has served 26 million mobile devices and protects another 63 million, but is ultimately chasing a market of 300 million device protection customers worldwide.
It also sells vehicle service contracts. Management believes rising car costs could drive people to drive older vehicles longer. As a result, extended vehicle service contracts could find more demand. Not only that, but with repair costs rising, people are more likely to seek coverage to avoid higher costs in the future. Assurant currently protects 54 million vehicles, but is targeting a market of 400 million vehicle service contracts worldwide.
In a recent investor presentation, the company projected adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) growth of 8% to 10% this year, while adjusted earnings per share (EPS) growth it will be from 16% to 20%. Looking ahead to 2023 and 2024, it expects Adjusted EBITDA growth of 10% per year and Adjusted EPS growth of 12%.
Is Assurant stock a purchase?
Assurant is a solid company that has done a stellar job serving a niche market. Even though the stock is up nearly 28% over the past year, it still has a trailing P/E ratio of just 8 and a forward P/E of 15. It has also paid a regular and growing dividend since 2013 that currently yields 1 ,5%.
Note that Assurant stock is trading at all-time highs right now. But given its discount valuation and the growth of the connected economy, Assurant remains a value stock that is well positioned for long-term growth.
This article represents the opinion of the author, who may not agree with the “official” recommendation position of a premium Motley Fool advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.