HIG Cramer initiating a 1500 share position in AA+ Portfolio
pening New Position in Insurer
02/19/13 - 01:43 PM EST
--Buying 1500 shares of Hartford Financial (HIG:NYSE) at $24.41.
We want to be overweight financials so, after taking gains in Wells Fargo (WFC:NYSE) and AIG (AIG:NYSE), we'll put a new name in the fund after you receive this Alert with 1500 shares of Hartford Financial (HIG:NYSE) at $24.41.
HIG may be a new name for us, but we've been following very closely as it goes through a restructuring. This company was one of the hardest hit during the financial crisis, with heavy annuity exposure that led to TARP funds and a secondary, but it has since repaid the money, changed nearly all its senior management and continues to run off its struggling highest-guaranteed-return annuities business. The company is now focused on improving its core businesses and building an integrated brand in its property/casualty and life segments. It has strengthened its balance sheet and, importantly, freed capital via asset sales of non-core divisions. We don't believe the restructuring is fully factored into the shares given the cheap valuation: 0.47x book and 0.5x tangible book value vs. historical at 1x book and 1.16x TBV.
Founded in 1810, Hartford offers property casualty, life insurance, annuity and mutual fund services to a wide variety of clients, both institutional and retail. Its products are a blend of workers comp, auto and homeowners insurance, and life insurance products. Its products are distributed through financial institutions, direct Internet sales, affinity groups and an independent network of 11,000 agents. After the financial crisis, the company pulled out of its international businesses and now has 98% of its sales in the U.S. Emphasis is now on retirement and fee-based services vs. international and spread business. It has also sold lower margin and return businesses (last year it sold Woodbury Financial and Retirement Plans and Individual Life earlier this year).
In its fourth-quarter call, the company announced a long-awaited capital management plan, which includes a $1.2 billion special dividend from its Connecticut Life insurance companies, dissolving its Vermont Life reinsurance captive and returning $300 million of surplus to the holding company. It will also cut debt by $1 billion and buy back $500 million in shares.
Fourth-quarter fundamentals were solid, beating on property casualty results due to better premiums (an industry trend we also expect AIG), on catastrophic losses and on lower costs (108.1% combined ratio vs. 108.8% expectation), as well as stronger growth/run-off earnings in Life from Mutual Funds and Group Benefits. Earnings were lowered to conservative levels, with the midpoint at core earnings of $1.4 billion.
Much like AIG, shares trade at a sizable discount. While we don't expect the stock to get back to past valuation because the leverage is much different, we see expansion as the company continues to shed non-core assets, improve segment earnings and strengthens its balance sheet.
After our trade, we'll own 1500 HIG shares, or 1.2% of the portfolio.