Eric Dutram

Bull of the Day: The Hanover Insurance Group (THG)

by

June 10, 2013 |
THG

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Although the stock market has been pretty sluggish lately, there are a few corners that are still holding up rather well. One such sector that is leading the market is undoubtedly financials, as these have taken a leadership role, and are seeing fresh capital from those following a sector rotation strategy.

In particular, the insurance segment has been doing quite well, as it is a relatively low beta sector that has been able to perform well no matter what the broad market trends have been. While many investors may be focusing in on the giants in the industry, there are a few small cap securities which may be offering more compelling values at this time, such as the Hanover Insurance Group (THG - Snapshot Report).

THG in Focus

Hanover Insurance Group is based in the great city of Worcester, Massachusetts and is in the property and casualty segment of the insurance industry. The firm has four segments; commercial, personal, Chaucer (think boats, planes, etc.) and a broad other property and casualty division.

THG is pretty spread out among these businesses, though the Chaucer division, in the most recent quarter, contributed the most in terms of operating income before income taxes. It is also worth noting that for the most recent quarter, income before income taxes saw good growth while the premiums taken in also represented a decent level of growth in terms of year-over-year figures.

Given this increase in revenues and a lack of big payout events, THG was able to have a pretty solid quarter recently. In fact, the company saw reported earnings beat estimates by nearly 31%, marking seven straight quarters of beats for the company.

Earnings Outlook

This beat and a decent outlook for the coming months has made analysts take notice of the stock for longer time frames. While there have been a few estimate revisions downward for the current quarter and current year period, the consensus has been sharply higher for the current year and next year periods.

In fact, both of the consensus quarterly estimates have pretty much stayed in a range while the yearly projections have surged higher. The current year prediction is now up from $3.76/share two months ago to $4.06/share today, while next year’s figures went from $4.26/share to $4.51/share today.

This suggests that investors may have some time to get in on this stock, and that bright days are ahead for Hanover. Particularly this is the case when investors consider the incredible growth figures that analysts are baking into the THG growth story.

Even with the somewhat reduced consensus for the current quarter, analysts are expecting year-over-year growth to come in over 275%. Furthermore, for the full year period, growth is expected to be in the four digit range (1,131%) when compared to the year ago time frame.

While part of this incredible growth is due to the low earnings numbers from last year—thanks to Hurricane Sandy—it is great news to see that Hanover is bouncing back very strong from this devastating storm and its impact on their bottom line.

Buy THG?

These factors have helped move THG into Zacks Rank #1 (Strong Buy) territory, making it a compelling choice for investors. This is particularly true considering that the stock had a Hold Rank just a week ago, suggesting that the growth story is just starting to turn around for THG.

If this incredible growth rebound and the top Rank aren’t enough for you, consider that the stock is in great company too. The Zacks Industry Rank for the property and casualty segment is currently at 8 out of 261, implying that there are very few places in the market that are better positioned than this corner.

So, if you are worried about the current state of the market, consider buying into the best performing sector in one of its top Ranked industries. In this space, THG represents a solid value that has fought through some troubles recently, and could make for an interesting play in the summer months thanks to its extremely favorable estimate picture.

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