The world is undergoing massive digital transformations on a global scale and smart devices aren't limited to cellphones anymore. Nowadays, you can find smart TVs, refrigerators, and vehicles as the Internet of Things (IoT) connects more devices than ever before.
According to a study by market research firm Facts and Factors, the global IoT market is expected to grow at a compound annual rate of 24.5% through 2028. This IoT market is where insurance specialist Assurant (AIZ 0.42%) sees an opportunity. The company has carved out a profitable niche by offering insurance for the digital economy and the growth it's seeing is has investors excited, which is generating market-crushing returns.
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Protecting the digital economy
Assurant is a niche insurance company focused on bringing solutions to the connected economy. Assurant offers specialty insurance coverage, like extended warranties, for everyday digital products like phones, appliances, and vehicle protection. It also provides coverage to lender-owned properties for things like homeowners insurance and flood insurance. Its primary source of money is the premiums collected on insurance policies and warranties and from interest earned from its investments.
Assurant's business has evolved, moving on from selling employee benefits coverage and pre-need life insurance policies. It pivoted out of these types of coverage in recent years to fully embrace its role in ensuring the connected economy.
10 years of outperformance
The most impressive thing about Assurant is its market-beating returns over the past decade -- a testament to the company and how well it has served the digital economy.
AIZ Total Return Level data by YCharts
The decade hasn't been entirely smooth sailing. In 2017, Assurant saw its revenue and net income dip temporarily as it sold its employee benefits business and managed losses from claims related to Hurricanes Harvey and Irma that year. Since then, Assurant has grown net earned premiums to $8.6 billion, producing an 18% compound annual growth rate.
Management sees these tailwinds to the business
Management is optimistic about Assurant's future growth as the digital world presents a huge opportunity. One of its main products is mobile device protection, and it has a network of locations where customers can get their devices repaired or even trade in devices for the latest models.
Management sees tailwinds that could propel this business higher, including the rising costs of mobile devices and the increasing importance of gadgets in people's day-to-day lives. Assurant has serviced 26 million mobile devices and protects another 63 million -- but it's ultimately chasing a market of 300 million device protection customers globally.
It also sells vehicle service contracts. Management believes that the rising costs of cars could lead people to drive older vehicles for longer. As a result, extended vehicle service contracts could find more demand. Not only that, but with the costs of repairs increasing, people may be more likely to seek out coverage to avoid higher future costs. Currently, Assurant protects 54 million vehicles -- but it's eyeing a market of 400 million vehicle service contracts globally.
In a recent investor presentation, the company projected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth to be 8% to 10% this year while adjusted earnings per share (EPS) growth will be 16% to 20%. Looking forward to 2023 and 2024, it expects adjusted EBITDA growth of 10% per year and adjusted EPS to grow 12%.
Is Assurant stock a buy?
Assurant is a solid company that has done a stellar job serving a niche market. Despite the stock trading up nearly 28% over the past year, it's still got a trailing price-to-earnings ratio of just 8 and a forward P/E of 15. It has also paid out a regular and growing dividend since 2013 that currently yields 1.5%.
Be aware that Assurant stock is trading at all-time highs at the moment. But given its discount valuation and the growth of the connected economy, Assurant is still a value stock that is well-positioned for long-term growth.
