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Hartford Financial (HIG) Up 34% YTD: More Room to Run?

Zacks Equity Research

The Hartford Financial Services Group, Inc. HIG is well-poised for growth on the back of strategic initiatives and increase in investment income.

Year to date, shares of the company have rallied 33.8% year to date, outperforming its industry’s growth of 4.5%. It has a Zacks Rank #3 (Hold).

It recently delivered second-quarter 2019 adjusted operating earnings of $1.33, beating the Zacks Consensus Estimate by 20%. Moreover, the bottom line increased 18% year over year on the back of improved Personal Lines, Group Benefits and Corporate results.

We expect this momentum to continue as the company gains from the following factors:

Strategic Initiatives: The company’s strategic moves have always been its topmost growth trajectory. The same has improved its risk profile from a number of well-executed planned dispositions of its legacy run-off businesses. Hartford Financial has been vending non-core businesses to concentrate on its U.S. operations and enhance its operating leverage. Apart from lowering expenses, boosting profitability and improving returns to shareholders, these divestitures are bettering financial flexibility by freeing up more capital.

The company has been also making efforts to boost its portfolio through acquisitions. In May, it closed the buyout of Navigators Group, a specialty insurer, for a deal value of around $2.1 billion. The move will expand the company’s product offerings and geographic reach plus strengthen its commercial business lines.

Improving Investment Income: Hartford Financial’s net investment income is gradually rising after having suffered low interest rates from the past many years. The metric increased 11% and 9% year over year in 2018 and in the first half of 2019, respectively. Higher investment income should contribute to revenue growth.

Capital Management: Hartford Financial’s capital appreciations, repayment of government funds and measures to de-risk its balance sheet cemented its financial position. It also has a discreet capital management strategy in place, featuring share buybacks and dividend hikes. The company’s dividend has been raised 200% over the last five years (2013-2018). It also announced a share repurchase authorization of $1 billion, effective through Dec 31, 2020. Cash flow from operation has been climbing over the last several quarters, evident from a CAGR of 17.31% during the 2016-2018 period.

Effectively Lowering Debt Level: Hartford Financial has also been successful in reducing its debt burden over the past several years. In the last four years (2012-2016), the company’s long-term debt has decreased 33%. Although in 2017, the debt level had slightly inched up, the same was down 6.8% and 5% during 2018 and in the first half of 2019, respectively. Given the consistent efforts made by the company, we expect its debt level to go down going forward.

Other Noteworthy Factors

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Also, the company delivered a positive earnings surprise in all the last four quarters, the average being 15.6%.

Stocks to Consider

Investors interested in the same space can look into some better-ranked stocks like Aflac Incorporated AFL, MGIC Investment Corporation MTG and Kemper Corporation KMPR. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aflac provides voluntary supplemental health and life insurance products. It has a Zacks Rank #2 (Buy) and average four-quarter positive surprise of 6.2%.

MGIC Investment Corporation provides private mortgage insurance and ancillary services in the United States. The company pulled off encouraging average positive surprise of 23.4% over the preceding four quarters. It has a Zacks Rank of 2.

Kemper is a diversified insurance holding company, providing property and casualty, life and health insurance in the United States. This Zacks #2 Ranked player managed to deliver average trailing four-quarter beat of 14.13%.

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