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Hartford Financial's Growth Potential Hurt by Personal Lines
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The Hartford Financial Services Group, Inc’s (HIG - Free Report) shares have recently gained momentum. Year to date, the stock has gained 20.3%, outperforming the Zacks categorized Multi Line Insurance industry’s gain of 10.4%. This outperformance reflects Hartford Financial’s strong foothold in the property and casualty market, actions taken to improve risk profile and efficient capital deployments.
The company’s well-executed strategic dispositions of its legacy run-off businesses has improved its risk profile. Divesture of its non-core businesses along with strategic acquisitions and alliances have helped it concentrate on its U.S. operations by enhancing operating leverage. Acquisition of Maxum Specialty Insurance Group in 2016 significantly added to the company’s results by providing more solutions for distribution partners and customers. In Jan 2017, Hartford Financial entered into a reinsurance deal with National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. to further strengthen its market position. These inorganic growth initiatives have significantly bolstered the underwriting results.
Capital appreciations, repayment of government funds and measures to de-risk its balance sheet have increased the company’s financial strength. Hartford Financial also displays intelligent capital management by regularly returning excess capital to shareholders via share buybacks.
Although Hartford Financial’s investment results have suffered long due to a soft interest rate environment, net investment income increased 0.8% year over year in 2016 . Net investment income further increased 5% in first-quarter 2017 due to higher investment income on limited partnerships. Management expects the trend to continue going forward.
The stock currently has a trailing 12-month P/B ratio of 1.12. This is exactly at the higher level of the 0.99-1.12 range witnessed by the stock in the same time frame. However, it compares favorably with the market at large, as the current P/B ratio for the S&P 500 is at 3.64 and for the broader industry is 1.29. Although the valuation looks stretched when compared with its own range, its lower-than-market positioning is likely to result in some more upside in the quarters ahead.
The stock has also been witnessing favorable estimate revisions for both 2017 and 2018 over past 60 days. The Zacks Consensus Estimate for 2017 grew 1.7% driven by four upward and no downward revisions. The Zacks Consensus Estimate for 2018 also increased 2% due to five upward and no downward revisions. The Zacks Consensus Estimate is currently pegged at 98 cents for the next quarter, reflecting nearly 216% year-over-year growth.
Nevertheless, Hartford Financial has been continuously witnessing declining income from fixed maturities and limited partnership. Being a property and casualty insurer, the company also remains exposed to numerous catastrophic events, which often result earnings volatility.
Moreover, the company’s Personal lines segment has incurred considerable amount of auto liability loss. Although the company has taken several initiatives to boost the margin of this segment, its efforts have not been sufficient to mitigate the negatives.
Some better-ranked stocks from the same space include Assurant, Inc. (AIZ - Free Report) , Cigna Corporation (CI - Free Report) and Old Republic International Corporation (ORI - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy).
Assurant offers risk management solutions for housing and lifestyle markets worldwide. The company delivered positive surprises in three of the last four quarters with an average beat of 6.82%.
Cigna provides insurance and related products and services in the U.S and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 1.35%.
Old Republic deals in the insurance underwriting and related services business, primarily in the U.S. and Canada. The company delivered positive surprises in two of the last four quarters with an average beat of 12.71%.
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By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>
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Hartford Financial's Growth Potential Hurt by Personal Lines
The Hartford Financial Services Group, Inc’s (HIG - Free Report) shares have recently gained momentum. Year to date, the stock has gained 20.3%, outperforming the Zacks categorized Multi Line Insurance industry’s gain of 10.4%. This outperformance reflects Hartford Financial’s strong foothold in the property and casualty market, actions taken to improve risk profile and efficient capital deployments.
The company’s well-executed strategic dispositions of its legacy run-off businesses has improved its risk profile. Divesture of its non-core businesses along with strategic acquisitions and alliances have helped it concentrate on its U.S. operations by enhancing operating leverage. Acquisition of Maxum Specialty Insurance Group in 2016 significantly added to the company’s results by providing more solutions for distribution partners and customers. In Jan 2017, Hartford Financial entered into a reinsurance deal with National Indemnity Company, a subsidiary of Berkshire Hathaway Inc. to further strengthen its market position. These inorganic growth initiatives have significantly bolstered the underwriting results.
Capital appreciations, repayment of government funds and measures to de-risk its balance sheet have increased the company’s financial strength. Hartford Financial also displays intelligent capital management by regularly returning excess capital to shareholders via share buybacks.
Although Hartford Financial’s investment results have suffered long due to a soft interest rate environment, net investment income increased 0.8% year over year in 2016 . Net investment income further increased 5% in first-quarter 2017 due to higher investment income on limited partnerships. Management expects the trend to continue going forward.
The stock currently has a trailing 12-month P/B ratio of 1.12. This is exactly at the higher level of the 0.99-1.12 range witnessed by the stock in the same time frame. However, it compares favorably with the market at large, as the current P/B ratio for the S&P 500 is at 3.64 and for the broader industry is 1.29. Although the valuation looks stretched when compared with its own range, its lower-than-market positioning is likely to result in some more upside in the quarters ahead.
The stock has also been witnessing favorable estimate revisions for both 2017 and 2018 over past 60 days. The Zacks Consensus Estimate for 2017 grew 1.7% driven by four upward and no downward revisions. The Zacks Consensus Estimate for 2018 also increased 2% due to five upward and no downward revisions. The Zacks Consensus Estimate is currently pegged at 98 cents for the next quarter, reflecting nearly 216% year-over-year growth.
Nevertheless, Hartford Financial has been continuously witnessing declining income from fixed maturities and limited partnership. Being a property and casualty insurer, the company also remains exposed to numerous catastrophic events, which often result earnings volatility.
Moreover, the company’s Personal lines segment has incurred considerable amount of auto liability loss. Although the company has taken several initiatives to boost the margin of this segment, its efforts have not been sufficient to mitigate the negatives.
Zacks Rank and Stocks to Consider
Currently, Hartford Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks from the same space include Assurant, Inc. (AIZ - Free Report) , Cigna Corporation (CI - Free Report) and Old Republic International Corporation (ORI - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy).
Assurant offers risk management solutions for housing and lifestyle markets worldwide. The company delivered positive surprises in three of the last four quarters with an average beat of 6.82%.
Cigna provides insurance and related products and services in the U.S and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 1.35%.
Old Republic deals in the insurance underwriting and related services business, primarily in the U.S. and Canada. The company delivered positive surprises in two of the last four quarters with an average beat of 12.71%.
3 Stocks to Ride a 588% Revenue Explosion
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...
By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>