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The Hanover Insurance Group’s THG prudent management of business mix, focus on growth of the most profitable product lines, stable retention, better pricing, strong market presence along with favorable growth estimates make it a good investment choice.
The company has a stellar track of beating earnings estimates in the last 11 quarters.
Zacks Rank & Price Performance
The Hanover Insurance Group currently sports a Zacks Rank #1 (Strong Buy). Over the past year, the stock has rallied 32.6%, outperforming the industry’s increase of 22.7% and the Zacks S&P 500 composite’s rise of 29.6%.
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The Zacks Consensus Estimate for 2021 earnings is pegged at $9.58, indicating 2.8% increase from the year-ago reported figure on 5.5% higher revenues of $5.1 billion. The consensus estimate for 2022 earnings is pegged at $10.30, indicating an increase of 7.5% from the year-ago reported figure on 5.4% higher revenues of $5.4 billion. The long-term earnings growth rate is currently pegged at 5.5%.
Return on Equity (ROE)
The company’s ROE for the trailing 12 months is 11.8%, comparing favorably with the industry’s 5.7%, reflecting the company’s efficiency in utilizing shareholders’ fund. The company targets operating return on equity of 13% in the long run, banking on improved rates and cost management.
The Zacks Consensus Estimate for 2021 has moved 2.8% north while the same for 2022 has moved up 1.3% in the past 30 days, reflecting analyst optimism.
The company has a favorable Value Score of B. This style score helps to identify undervalued stocks that have a long history of showing superior returns. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 or #2 (Buy) are the best investment options.
Hanover Insurance has evolved to be a balanced, small/middle market focused commercial and personal lines carrier. It aims to penetrate the $100-billion market, leveraging agency growth. The company looks to be the premier P&C franchise in the independent agency channel.
Reopening of the economy, rate increases and the successful launch of TAP sales should drive Commercial Lines revenues. The company launched its small commercial quoting platform in nine more states in the second quarter, thus taking the tally to 20.
Growing new business should drive performance at Personal Lines. The company intends to leverage its strength of data and analytics to grow opportunistically.
Growth of its specialty portfolio, expansion of new product capabilities — including excess and surplus, cyber and financial institutions — and enhancement of the professional liability platform bode well.
It lowered exposure in vulnerable regions of the Southeast, Gulf Coast and West Coast, while reducing micro concentrations and enhancing reinsurance protections. These steps should allow it to improve underwriting profitability.
Solid Dividend History
The company has been hiking dividend for the last 15 years, in addition to paying special dividends. Its dividend increased at a five-year CAGR 7.8%. Its yield of 2.1% is better than the industry average of 0.4%.
The company estimates net written premium growth in the mid-to-high single-digits for the second half of 2021. Given solid first-half results, it expects to deliver upper mid-single-digit growth in 2021.
Ex-cat combined ratio guidance has been improved to 89% to 90% for 2021 from 90% to 91% guided earlier on better-than-expected first-half ex-cat combined ratio performance.
It is also on track to reduce expense ratio by at least 30 basis points in 2021 to 31.3.
Other Stocks to Consider
Some other top-ranked stocks in the same space include Chubb Limited CB, Cincinnati Financial Corporation CINF and Everest Re Group RE, all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chubb delivered an earnings surprise of 22.30% in the last reported quarter.
Cincinnati Financial delivered an earnings surprise of 80.81% in the last reported quarter.
Everest Re Group delivered an earnings surprise of 62.56% in the last reported quarter.
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Chubb Limited (CB) : Free Stock Analysis Report
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The Hanover Insurance Group, Inc. (THG) : Free Stock Analysis Report
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