On Apr 10, 2013, shares of Hartford Financial Service Group Inc. (HIG) hit a 52-week high of $27.15.
Hartford Financial is trying to boost its financial flexibility by reducing debt and returning more value to shareholders through share repurchase, per a capital plan announced on Feb 4, 2013. Accordingly, the company has already completed a cash tender offer for repayment of senior notes worth $800 million at a premium value of $1 billion.
Additionally, Hartford Financial plans to issue a new long-term senior debt securities equal to the maximum amount of Waterfall Notes repurchased, i.e. $350 million. These debt repayments and issue of senior debt securities will cumulatively reduce the total debt by $1 billion, according to the plan. Further, the company plans to repurchase shares worth $500 million by the end of 2013.
Hartford Financial has generated a significant amount of surplus capital from the recent divestitures of Woodbury Financial Services, Retirement Plans, Individual Life Insurance and Individual Annuity businesses. This surplus capital is driving the capital plan.
With respect to earnings trend, Hartford Financial delivered positive earnings surprise in 2 out of 4 quarters in 2012 with an average beat of 14.4%. Our proven model shows that this multi-line insurer is likely to beat earnings in the first quarter of 2013 because it has a right combination of a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and Zacks Rank. ESP or Expected Surprise Prediction, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.25%. Hartford Financial presently carries a Zacks Rank #3 (Hold).
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 of 6.4% is also lower than the peer group average of 7.7%. The 1-year return from the stock is 28.4%, above S&P’sreturn of 13.6%.
Other stocks in the insurance sector that are worth a look are CNO Financial Group Inc. (CNO) – Zacks Rank #1 (Strong Buy), Eastern Insurance Holdings Inc. (EIHI) – Zacks Rank #2 (Buy) and FBL Financial Group Inc. (FFG) – Zacks Rank #2 (Buy).
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