On Mar 25, 2013, shares of Hartford Financial Service Group Inc. (HIG) hit a 52-week high of $26.69. The momentum is driven by the company’s recent capital management plans and earnings beat in the fourth quarter of 2012.
On Feb 4, 2013, Hartford Financial reported fourth-quarter 2012 operating earnings of 54 cents per share, comfortably beating the Zacks Consensus Estimate of 30 cents. The company delivered positive earnings surprise in 2 out of 4 quarters in 2012 with an average beat of 14.4%.
On the same day, Hartford Financial announced a capital management plan aimed at boosting financial flexibility by reducing debt and returning more value to shareholders through share repurchase. The plan comprises debt repayment worth $1 billion along with repurchase of shares worth $500 million by the end of 2013. The company, in an effort to successfully execute its plans, has already announced a cash tender offer to repurchase senior debt worth $800 million.
The capital plan was driven by the surplus capital that Hartford Financial generated from the recent divestitures. The company completed the sale of Woodbury Financial Services in Dec 2012 and its Retirement Plans and Individual Life Insurance businesses in Jan 2013. These three transactions cumulatively enhanced the net statutory capital by $2.2 billion, most of which will be recognized in 2013.
Hartford Financial also terminated its Individual Annuity business in the second quarter of 2012 and sold its new variable annuity business infrastructure in Jan 2013, which is expected to cut down pre-tax expenses by $100 million in 2013.
The valuation of Hartford Financial’s shares is reasonable. The shares are trading at a discount on a price-to-book and forward price-to-earnings basis and return on equity is also lower than the peer group average. Nevertheless, the 1-year return from the stock is 21.5%, much above the S&P 500’sreturn of 11.4%.
Hartford Financial carries a Zacks Rank #3 (Hold). Other stocks in the insurance sector that are worth a look are AEGON N.V. (AEG), AXA Group (AXAHY) and CNO Financial Group Inc. (CNO). All these companies carry a Zacks Rank #1 (Strong Buy).
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