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Here's Why You Should Retain Hanover Insurance (THG) Stock

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The Hanover Insurance Group’s (THG - Free Report) focus on driving growth in the most profitable Core Commercial and Specialty segments, stable retention, better pricing, strong market presence along with favorable growth estimates make it a good investment choice.

This insurer has a stellar track of beating earnings estimates in the last 12 quarters.

Zacks Rank & Price Performance

Hanover Insurance currently carries a Zacks Rank #3 (Hold). Over the past year, the stock has gained 10.2%, compared with the industry’s increase of 20.4%.

Growth Projections

The Zacks Consensus Estimate for Hanover Insurance’s 2022 earnings is pegged at $10.47, indicating a 33.2% increase from the year-ago reported figure on 7.2% higher revenues of $5.5 billion. The long-term earnings growth rate is currently pegged at 8.3%.

Return on Equity (ROE)

The company’s ROE for the trailing 12 months is 9.9%, comparing favorably with the industry’s 5.7%, reflecting the company’s efficiency in utilizing shareholders’ fund.  Hanover Insurance targets operating return on equity of 14% in the long run, banking on improved rates and cost management.

Estimate Revision

The Zacks Consensus Estimate for 2022 has moved north by a cent, reflecting analyst optimism.

Style Score

The company has a favorable VGM Score of A.

Business Tailwinds

Hanover Insurance has evolved into a balanced, small/middle market-focused commercial and personal lines carrier. The company looks to be the premier P&C franchise in the independent agency channel.

Reopening of the economy, rate increases and the successful launch of TAP sales should drive Commercial Lines revenues. Hanover Insurance believes that its market-leading capabilities, operating model and portfolio performance should allow it to benefit in the high-margin $105 billion small commercial market segment.

Focus on pricing segmentation and mix management and emphasis on growth in target states, product lines and industry classes in the middle market bode well for THG.

THG has withdrawn all operations in its Personal Lines business in Florida. It continues to prudently manage exposure in other Gulf states, cap capital allocation in wildfire exposed regions in the West and coastal exposure in the East and has catastrophe and property risk reinsurance programs in place.  These steps should allow it to improve underwriting profitability.

THG continues to invest in technology to upgrade the front-end capabilities. The insurer has invested more than $200 million to upgrade or replace nearly all core systems within its technology stack.

Solid Dividend History

The company has been hiking dividends for the last 16 years, in addition to paying special dividends. THG’s dividend witnessed an 11-year CAGR of 10.5%. Its yield of 2.2% is better than the industry average of 0.3%.

Optimistic Guidance

The company estimates bottom-line growth in the high single digits in 2021.

Ex-cat combined ratio is estimated at the low end of 89% to 90% for 2021.

It is also on track to reduce the expense ratio by at least 30 basis points in 2021 to 31.3.

Long-Term Target

The Hanover Insurance Group expects net premium written to witness a five-year CAGR of more than 7% to $7 billion, bottom line between 12% and 13% and book value per share between 7% and 8% by 2026.

Stocks to Consider

Some better-ranked stocks from the same space include Hallmark Financial Services (HALL - Free Report) , Fidelity National Financial (FNF - Free Report) and Stewart Information Services (STC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Hallmark Financial’s 2022 earnings stands at 25 cents on revenues of $363.2 million. Hallmark Financial, sporting a Zacks Rank #1, delivered a four-quarter average earnings surprise of 53.62%.

The Zacks Consensus Estimate for 2022 Fidelity National’s earnings has moved up 4.6% in the past 60 days. Fidelity National delivered a four-quarter average earnings surprise of 38.18%.

The Zacks Consensus Estimate for Stewart Information’s 2022 earnings has moved up 15.3% higher in the past 60 days. Stewart Information has a VGM Score of A.

Shares of HALL, FNF and STC have rallied 32.9%, 31.8% and 42.2%, respectively, in a year.