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Why Hold is an Apt Strategy for Hanover Insurance (THG) Now
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The Hanover Insurance Group’s (THG - Free Report) growth in the most profitable Core Commercial and Specialty segments, stable retention, better pricing, strong market presence and solid capital position make it a stock worth retaining in one’s portfolio.
Hanover Insurance Group has a stellar history of delivering positive surprises in the last 15 reported quarters.
This insurer has an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 earnings has moved 2.6% north in the past seven days, reflecting analyst optimism.
Zacks Rank & Price Performance
Hanover Insurance currently carries a Zacks Rank #3 (Hold). Year to date, the stock has gained 2.9% against the industry’s decline of 8.2%.
Image Source: Zacks Investment Research
Optimistic Growth Projections
The Zacks Consensus Estimate for 2022 earnings stands at $10.53, implying an increase of 20.6% from the year-ago reported figure on 6% higher revenues of $5.4 billion. The consensus estimate for 2023 earnings stands at $11.25, implying an increase of 6.9% from the year-ago reported figure on 6.3% higher revenues of $5.8 billion.
Hanover Insurance estimates the bottom line to grow between 12% and 13% over the long term. The expected long-term earnings growth is pegged at 16.9%, better than the industry average of 11.2%.
Growth Drivers
Hanover Insurance is poised for growth, given its focus on pricing segmentation and mix management as well as an emphasis on growth in target states, product lines and industry classes in the middle market.
Hanover Insurance expects to increase prices in both home and auto, which, in turn, should help deliver mid-single-digit growth in target returns in Personal Lines in 2022. As THG executes on tiered pricing, it expects new business accounts to decline in the second half of the year but remains focused on margin improvement. The company targets renewal pricing in Personal Auto to increase 6% to 7% in the fourth quarter and increase further to at least 8% in 2023.
At Auto, THG expects a near double-digit rate increase for the remainder of 2022.
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.
The Commercial Lines loss ratio is expected to improve in 2022, given the rate increases implemented in 2021. The consolidated expense ratio is projected to improve 20 basis points in 2022 to 31.1%.
Given the accelerated pace in digitalization across the insurance industry, THG continues to invest in technology to upgrade its front-end capabilities.
All these together should help THG deliver the higher end of mid-single-digit net written premium growth in 2022 and a five-year CAGR of more than 7% to $7 billion.
Hanover Insurance also estimates an improving rate environment to support net investment income and thus projects an incremental favorable impact on fixed income NII of nearly $10 million in 2022 and $20 million to $25 million in 2023. Pre-tax net investment income is expected between $280 million and $285 million in 2022.
Better rates and prudent cost management will likely aid THG achieve an operating return on equity of 14% in the long run.
Banking on these positives, Hanover Insurance, which has evolved into a balanced, small/middle market-focused commercial and personal lines carrier, now looks to be the premier P&C franchise in the independent agency channel.
Solid Dividend History
Hanover Insurance has been hiking dividends for the last 16 years, in addition to paying special dividends. Its yield of 2.2% is better than the industry average of 0.4%.
The Zacks Consensus Estimate for Berkshire Hathaway’s 2022 and 2023 earnings implies 16.7% and 4.2% year-over-year growth, respectively. The expected long-term earnings growth is pegged at 7%.
The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings has moved 3.3% and 8.2% north, respectively, in the past 60 days. Year to date, shares of BRK.B have lost 10%.
ProAssurance’s earnings surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 150.98%.
The Zacks Consensus Estimate for PRA’s 2022 and 2023 earnings has moved 26% and 13.9% north in the past 60 days. Year to date, shares of PRA have lost 24.1%.
The Zacks Consensus Estimate for Root’s 2022 and 2023 earnings implies 39.2% and 26.2% year-over-year growth, respectively. The expected long-term earnings growth is pegged at 41.3%.
The company delivered four-quarter average earnings surprise of 22.40%. Year to date, shares of ROOT have lost 85.5%.
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Why Hold is an Apt Strategy for Hanover Insurance (THG) Now
The Hanover Insurance Group’s (THG - Free Report) growth in the most profitable Core Commercial and Specialty segments, stable retention, better pricing, strong market presence and solid capital position make it a stock worth retaining in one’s portfolio.
Hanover Insurance Group has a stellar history of delivering positive surprises in the last 15 reported quarters.
This insurer has an impressive VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 earnings has moved 2.6% north in the past seven days, reflecting analyst optimism.
Zacks Rank & Price Performance
Hanover Insurance currently carries a Zacks Rank #3 (Hold). Year to date, the stock has gained 2.9% against the industry’s decline of 8.2%.
Image Source: Zacks Investment Research
Optimistic Growth Projections
The Zacks Consensus Estimate for 2022 earnings stands at $10.53, implying an increase of 20.6% from the year-ago reported figure on 6% higher revenues of $5.4 billion. The consensus estimate for 2023 earnings stands at $11.25, implying an increase of 6.9% from the year-ago reported figure on 6.3% higher revenues of $5.8 billion.
Hanover Insurance estimates the bottom line to grow between 12% and 13% over the long term. The expected long-term earnings growth is pegged at 16.9%, better than the industry average of 11.2%.
Growth Drivers
Hanover Insurance is poised for growth, given its focus on pricing segmentation and mix management as well as an emphasis on growth in target states, product lines and industry classes in the middle market.
Hanover Insurance expects to increase prices in both home and auto, which, in turn, should help deliver mid-single-digit growth in target returns in Personal Lines in 2022. As THG executes on tiered pricing, it expects new business accounts to decline in the second half of the year but remains focused on margin improvement. The company targets renewal pricing in Personal Auto to increase 6% to 7% in the fourth quarter and increase further to at least 8% in 2023.
At Auto, THG expects a near double-digit rate increase for the remainder of 2022.
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.
The Commercial Lines loss ratio is expected to improve in 2022, given the rate increases implemented in 2021. The consolidated expense ratio is projected to improve 20 basis points in 2022 to 31.1%.
Given the accelerated pace in digitalization across the insurance industry, THG continues to invest in technology to upgrade its front-end capabilities.
All these together should help THG deliver the higher end of mid-single-digit net written premium growth in 2022 and a five-year CAGR of more than 7% to $7 billion.
Hanover Insurance also estimates an improving rate environment to support net investment income and thus projects an incremental favorable impact on fixed income NII of nearly $10 million in 2022 and $20 million to $25 million in 2023. Pre-tax net investment income is expected between $280 million and $285 million in 2022.
Better rates and prudent cost management will likely aid THG achieve an operating return on equity of 14% in the long run.
Banking on these positives, Hanover Insurance, which has evolved into a balanced, small/middle market-focused commercial and personal lines carrier, now looks to be the premier P&C franchise in the independent agency channel.
Solid Dividend History
Hanover Insurance has been hiking dividends for the last 16 years, in addition to paying special dividends. Its yield of 2.2% is better than the industry average of 0.4%.
Stocks to Consider
Some better-ranked stocks from the same space are Berkshire Hathaway Inc. (BRK.B - Free Report) , ProAssurance Corporation (PRA - Free Report) and Root (ROOT - Free Report) . While Berkshire and ProAssurance sport Zacks Rank #1 (Strong Buy), Root carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Berkshire Hathaway’s 2022 and 2023 earnings implies 16.7% and 4.2% year-over-year growth, respectively. The expected long-term earnings growth is pegged at 7%.
The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings has moved 3.3% and 8.2% north, respectively, in the past 60 days. Year to date, shares of BRK.B have lost 10%.
ProAssurance’s earnings surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 150.98%.
The Zacks Consensus Estimate for PRA’s 2022 and 2023 earnings has moved 26% and 13.9% north in the past 60 days. Year to date, shares of PRA have lost 24.1%.
The Zacks Consensus Estimate for Root’s 2022 and 2023 earnings implies 39.2% and 26.2% year-over-year growth, respectively. The expected long-term earnings growth is pegged at 41.3%.
The company delivered four-quarter average earnings surprise of 22.40%. Year to date, shares of ROOT have lost 85.5%.