Hartford Financial Shares a Sell

Hartford Financial Services Group, Inc. (HIG - Analyst Report) shares had lost more than half their value Thursday morning, based on the concerns that the company may need to raise additional capital soon.

Further, the management was not able to provide a forecast of the year-end capital margin due to the ongoing market volatility. 3Q08 core losses of $1.40 per share were substantially worse than the estimates. The company also lowered its guidance for FY08 to $4.30 4.50 per share from $9.20 9.50 per share earlier. After reviewing the results and revised management guidance, we are reducing our FY08 and FY09 EPS estimates and downgrading our recommendation on the shares to a Sell.

At the current price level, shares of HIG trade at 0.48x its September 30, 2008 reported book value of $41.80 per share and 0.36x its adjusted book value (excluding AOCI) of $55.63 per share. It is difficult to anticipate significant price-to-book value multiple expansion at this point in time due to the challenging environment, as we expect the company to face increased competition and higher losses in the investment portfolio in the coming quarters.

As such, our six-month price target of $8.50 per share incorporates values for both the P&C and Life segments at 0.21x our estimated book value of $40.00 per share (excluding AOCI) as of March 31, 2009. This price target also equates to 1.5x our estimated earnings for the year 2008.

Read the analyst note on HIG

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