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The Hartford (HIG) Up 2.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for The Hartford (HIG - Free Report) . Shares have added about 2.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is The Hartford due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hartford Financial Q2 Earnings In Line, Revenues Beat

Hartford Financial reported second-quarter 2020 adjusted operating earnings of $1.22 per share, which matched the Zacks Consensus Estimate.

However, the bottom line fell 8% year over year primarily due to reduced investment income, incurred benefits and losses pertaining to COVID-19, and higher CAY CATs due to civil unrest. Nevertheless, the results were partially offset by effect of lower claim incidence and net favorable P&C PYD.

Total operating revenues of $3.2 billion plunged 36.1% year over year on account of weak revenues led by the company’s Personal Lines, P&C Other Ops, Group Benefits and Hartford Funds segments. However, decline in revenues has been partially offset by uptick in the Commercial Lines and Corporate segments. The top line also surpassed the Zacks Consensus Estimate by 1.6%.

Net investment income declined 31% year over year to $339 million in the second quarter. The downside was due to reduced yield on fixed income maturity investments and losses on limited partnerships, and other alternative investments (LPs).

Segmental Results

Property & Casualty (P&C)  
 
Commercial Line

During the quarter under review, the segment’s total revenues of $2.4 billion were up 4.2% year over year.

Net loss of $66 million compared unfavorably with the prior-year quarter’s net income of $191 million. This was primarily due to incurred losses related to COVID-19 and an increase in CAY CATs stemming from losses on account of civil unrest in late May and June. It also reported core loss of $57 million against the year-ago quarter’s core earnings of $304 million. This can be attributed to incurred underwriting loss, higher CAY CATs and increased net unfavourable reserve development.

The segment’s underlying combined ratio was 102.9%, deteriorating 970 basis points (bps) in the quarter under review.

Personal Lines

Total revenues were $760 million, down 14.4% year over year.

Net income of $371 million soared 498.4% year over year on the back of lower auto frequency claim and favorable PYD linked with subrogation recoveries.

Core earnings of $364 million skyrocketed 561.8% from the year-ago quarter, courtesy of a stronger underwriting gain and lower non-CAT weather-related losses in homeowners. Underlying combined ratio of the segment contracted 1030 bps to 80.7% in the quarter under review.

P&C Other Ops

Revenues grossed $12 million, down 52% year over year.

Group Benefits

Group Benefits’ total revenues of $1.5 billion decreased 2.1% year over year.

Net income of $101 million declined 11% year over year. Core earnings of $102 million in the second quarter also fell 11% year over year. This downside was due to incurred benefits and losses related to COVID-19, softer net investment income and higher operating expenses pertaining to increased allowance for credit losses on premium receivable.

Total loss ratio of 72% improved 260 bps from the year-earlier quarter, riding on better group disability loss ratio. However, the same was partly offset by COVID-19 group life claims.

Hartford Funds

Hartford Funds’ operating revenues of $236 million decreased 6.7% year over year.

Hartford Funds reported net income of $39 million, which improved 3% year over year driven by higher net realized capital gains and reduced operating costs. Core earnings of $33 million plunged 13% year over year due to lower fee income.

Average daily AUM of $111 billion was down 6% from the year-ago figure.

Corporate

Operating revenues were $113 million, which soared 151.1% year over year.

The segment’s core loss of $6 million was narrower than the $35 million loss incurred in the prior-year quarter. This was mainly owing to improved income derived from the company's retained equity interest in Talcott Resolution.

The segment reported net income of $18 million against the year-ago quarter’s net loss of $43 million. This was mainly driven by increased net realized capital gains.

Dividend Update

On Jul 16, Hartford Financial declared quarterly dividend of 32.5 cents per share. The dividend will be paid on Oct 2, 2020 to shareholders of record as of Sep 1.

Financial Update

Book value per share as of Jun 30, 2020 was up 6% to $46.59 from the level as of Dec 31, 2019.

Core earnings’ return on equity improved 100 bps year over year to 12.7%.


 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, The Hartford has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, The Hartford has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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