Estimates for The Hartford Financial Services Group, Inc. HIG have been revised upward over the past 30 days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2020 earnings move 1.3% north over the same time frame.
The company flaunts an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four reported quarters, the average being 14.74%. This trend of consecutive estimate beats underlines the company’s operating efficiency.
The company is well-poised for growth, evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
Its return on equity — a profitability measure — is 12.3%, better than the industry average of 8.1%. Further, the metric reflects the company’s effectiveness in utilizing its shareholders’ money.
The company recently delivered fourth-quarter 2018 adjusted earnings of 78 cents per share, beating the Zacks Consensus Estimate by 20%, primarily on the back of higher core earnings in Group Benefits and Hartford Funds, a lower tax rate, better Commercial Lines’ underlying results and solid net investment income in Property &Casualty and Corporate.
The company has been consistently undertaking strategic initiatives to improve its risk profile through a number of well-executed strategic dispositions of its legacy run-off businesses. It has been vending non-core businesses to concentrate on its U.S. operations and enhance its operating leverage.
Some of the recent deals include the sale of its U.K. property & casualty (P&C) run-off subsidiaries and the reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. Also, divestment of Talcott, the company’s run-off life and annuity businesses, is noteworthy. In November 2017, the company acquired Aetna Inc’s U.S. group life and disability business for $1.45 billion to solidify and upgrade its Group Benefits distribution capabilities plus accelerate its technology strategy. Recently, the company also signed a contract to buy Navigators for boosting its product offerings and the geographic reach, which is expected to close in March or April, 2019.
Moreover, the company’s net investment income is rising owing to better interest rates. The metric increased 11% year over year to $1.8 billion during 2018, mainly driven by partnership income and solid invested assets. We expect investment results to improve going forward, courtesy of the hike in interest rate by the Fed during the year.
Hartford Financial has also been successful in reducing its debt burden over the past several years. Although in 2017, the indebtedness slightly inched up 1.8%, the same was down 6.8% during 2018.
However, the company’s Personal Lines segment has been incurring loss on higher auto liability loss costs since the past few years. In 2018, the segment suffered a loss of $32 million, wider than 2017’s loss of $9 million. In the fourth quarter, the segment was largely impacted by two hurricanes and a wildfire. Weakness in this business line poise threat to the company.
Also, the company has been witnessing escalated expenses since 2015. Continuing with the momentum, total expenses and benefits rose 4.6% year over year in 2018. Although expense ratio for the year has contracted 170 bps, elevated expenses are still a persistent concern for the company.
The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.23, representing a year-over-year increase of 19.5% on 17.8% higher revenues of $70.83 billion.
For 2019 and 2020, the Zacks Consensus Estimate for earnings stands at $4.97 and $5.40, up 14.8% and 8.7%year over year, respectively.
The expected long-term earnings growth rate is pegged at 9.5%, higher than the industry’s average of 8.2%, which is an upside for the company.
Shares of this Zacks Rank #3 (Hold) company have lost 8.7% in a year’s time, narrower than the industry’s decline of 12.2%.
Stocks to Consider
Investors interested in the insurance industry might consider some better-ranked stocks like The Berkshire Hathaway Inc. BRK.B, MGIC Investment Corporation MTG and The Allstate Corporation ALL. You can see
Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. The company carries a Zacks Rank #2 (Buy) and delivered a beat in three of the last four reported quarters, the average positive surprise being 4.31%.
MGIC Investment Corporation offers private mortgage insurance and ancillary services to lenders and government sponsored entities. It has a Zacks Rank of 2 and pulled off average trailing four-quarter earnings surprise of 22.88%.
Allstate Corporation offers property and casualty, and other insurance products in the United States and Canada. The company is a Zacks #2 Ranked player and came up with average four-quarter positive surprise of 14.48%.
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