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Hartford Financial (HIG) Up 2.5% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Hartford Financial Services Group, Inc.(The) (HIG - Free Report) . Shares have added about 2.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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 drivers.
The HartFord Beats on Q4 Earnings; Revenues Up Y/Y
The Hartford reported fourth-quarter 2016 adjusted operating earnings of $1.08 per share, which surpassed the Zacks Consensus Estimate by roughly 12.5%. Earnings also grew 1% year over year.
In 2016, the company’s adjusted operating earnings were $3.38 per share, down 12.9% from the last year.
The quarterly earnings were driven by strong margins in Commercial Lines and Group Benefits. Robust performance by Mutual Funds and Talcott Resolution also contributed to upside. Initiatives taken to improve the quality and price adequacy of new business and renewals in Personal Lines have also started to bear fruits.
The company’s net loss of $81 million in the fourth quarter compared unfavorably with net income of $421 million in the prior-year quarter. Core earnings of $415 million also declined 6.7% year over year. The net loss primarily stemmed from a charge of $423 million levied after-tax resulting from a reinsurance agreement with National Indemnity Company covering The Hartford's A&E liability exposures in the fourth quarter.
Total operating revenue of The Hartford came in at $4.7 billion, up 1% year over year. Higher net investment income and earned premiums led to the top-line improvement.
Quarterly Segment Results
Property & Casualty (P&C):
Commercial Line
Commercial Lines written premiums were $1,664 million, up 3% year over year. This was due to 7% growth in Small Commercial, including the addition of Maxum Specialty, and 1% growth in Middle Market. The improvement was partially offset by a 2% decline in Specialty Commercial.
Net income in the fourth quarter increased 9% to $267 million and core earnings rose 4% to $277 million, both on a year-over-year basis.
Combined ratio deteriorated 320 basis points (bps) year over year in the fourth quarter to 91.3 due to net unfavorable PYD and higher catastrophe losses incurred from Hurricane Matthew as well as other weather events.
Personal Lines
Personal Lines written premiums were $892 million, down 5% year over year. This was due to lower new business and lesser policy count retention.
The company’s net loss of $18 million in the fourth quarter compared unfavorably with net income of $51 million in the prior-year quarter.
Combined ratio expanded 1140 bps year over year to 106.7 due to unfavorable PYD for personal automobile liability losses and higher catastrophe losses than the prior-year +-quarter.
Group Benefits:
Group Benefits’ fully-insured ongoing premiums inched up 2% to $788 million due to strong persistency and increased pricing.
This segment generated net income of $63 million, up 70% year over year. Core earnings also increased 48% year over year to $59 million.
Total loss ratio was 76.7%, down 1700 bps from the last-year quarter. This was primarily due to a decline in the group life loss ratio, largely resulting from favorable changes in reserve estimates.
Mutual Funds:
Net income and core earnings at the Mutual Funds segment was $17 million, down 15% year over year. This was due to costs related to the acquisition of Lattice Strategies and the adoption of 10 Schroders mutual funds.
Average AUM (Asset Under Maintenance) increased 3.2% year over year to $95.9 billion, mainly due to improved market conditions during 2016 and the addition of approximately $3.0 billion from the Schroders funds adoption in Oct 2016. The improvement was largely offset by the continued runoff of Talcott Resolution.
Talcott Resolution:
Talcott Resolution’s net income $45 million surged 61% from the prior-year quarter due to lower net realized capital losses and higher investment income from LPs. This was partially offset by an unlock charge incurred in the quarter. We note that the company had posted an unlock benefit in the prior-year quarter.
Core earnings were up 34% year over year to $111 million due to higher investment income from LPs and a tax benefit from the conclusion of a prior-year federal tax audit.
Corporate:
The Corporate segment recorded net loss of $32 million, wider than a net loss of $27 million in the prior-year quarter. This $5 million increase in net loss was primarily due to $34 million tax benefit in the last-year quarter from the reduction of the deferred tax valuation allowance on capital loss carryovers, largely offset by lower interest and other expenses and a net benefit of $17 million in fourth quarter 2016 from investments in solar energy partnerships.
However, Corporate core losses were $47 million in the reported quarter owing to a $9 million improvement from last year quarter due to lower interest expenses and other expenses along with higher net investment income.
Financial Update
As of Dec 31, 2016, book value per diluted share was $44.35, up 3% year over year. This was due to a 7% decrease in common shares outstanding and dilutive potential common shares. This improvement was partially offset by a 4% decrease in stockholders' equity due to share repurchases and common stockholder dividends in excess of net income during 2016.
Net return on equity (ROE) was 5.2% in fourth quarter 2016 compared with 9.3% in the prior-year quarter.
Share Repurchases
During 2016, the Hartford repurchased 30.8 million common shares for a total of $1.3 billion.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been three downward revisions for the current quarter.
Hartford Financial Services Group, Inc. (The) Price and Consensus
At this time, the stock has a subpar Growth Score of 'D', though it is lagging a lot on the momentum front with an 'F'. However, 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 aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Hartford Financial (HIG) Up 2.5% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Hartford Financial Services Group, Inc. (The) (HIG - Free Report) . Shares have added about 2.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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 drivers.
The HartFord Beats on Q4 Earnings; Revenues Up Y/Y
The Hartford reported fourth-quarter 2016 adjusted operating earnings of $1.08 per share, which surpassed the Zacks Consensus Estimate by roughly 12.5%. Earnings also grew 1% year over year.
In 2016, the company’s adjusted operating earnings were $3.38 per share, down 12.9% from the last year.
The quarterly earnings were driven by strong margins in Commercial Lines and Group Benefits. Robust performance by Mutual Funds and Talcott Resolution also contributed to upside. Initiatives taken to improve the quality and price adequacy of new business and renewals in Personal Lines have also started to bear fruits.
The company’s net loss of $81 million in the fourth quarter compared unfavorably with net income of $421 million in the prior-year quarter. Core earnings of $415 million also declined 6.7% year over year. The net loss primarily stemmed from a charge of $423 million levied after-tax resulting from a reinsurance agreement with National Indemnity Company covering The Hartford's A&E liability exposures in the fourth quarter.
Total operating revenue of The Hartford came in at $4.7 billion, up 1% year over year. Higher net investment income and earned premiums led to the top-line improvement.
Quarterly Segment Results
Property & Casualty (P&C):
Commercial Line
Commercial Lines written premiums were $1,664 million, up 3% year over year. This was due to 7% growth in Small Commercial, including the addition of Maxum Specialty, and 1% growth in Middle Market. The improvement was partially offset by a 2% decline in Specialty Commercial.
Net income in the fourth quarter increased 9% to $267 million and core earnings rose 4% to $277 million, both on a year-over-year basis.
Combined ratio deteriorated 320 basis points (bps) year over year in the fourth quarter to 91.3 due to net unfavorable PYD and higher catastrophe losses incurred from Hurricane Matthew as well as other weather events.
Personal Lines
Personal Lines written premiums were $892 million, down 5% year over year. This was due to lower new business and lesser policy count retention.
The company’s net loss of $18 million in the fourth quarter compared unfavorably with net income of $51 million in the prior-year quarter.
Combined ratio expanded 1140 bps year over year to 106.7 due to unfavorable PYD for personal automobile liability losses and higher catastrophe losses than the prior-year +-quarter.
Group Benefits:
Group Benefits’ fully-insured ongoing premiums inched up 2% to $788 million due to strong persistency and increased pricing.
This segment generated net income of $63 million, up 70% year over year. Core earnings also increased 48% year over year to $59 million.
Total loss ratio was 76.7%, down 1700 bps from the last-year quarter. This was primarily due to a decline in the group life loss ratio, largely resulting from favorable changes in reserve estimates.
Mutual Funds:
Net income and core earnings at the Mutual Funds segment was $17 million, down 15% year over year. This was due to costs related to the acquisition of Lattice Strategies and the adoption of 10 Schroders mutual funds.
Average AUM (Asset Under Maintenance) increased 3.2% year over year to $95.9 billion, mainly due to improved market conditions during 2016 and the addition of approximately $3.0 billion from the Schroders funds adoption in Oct 2016. The improvement was largely offset by the continued runoff of Talcott Resolution.
Talcott Resolution:
Talcott Resolution’s net income $45 million surged 61% from the prior-year quarter due to lower net realized capital losses and higher investment income from LPs. This was partially offset by an unlock charge incurred in the quarter. We note that the company had posted an unlock benefit in the prior-year quarter.
Core earnings were up 34% year over year to $111 million due to higher investment income from LPs and a tax benefit from the conclusion of a prior-year federal tax audit.
Corporate:
The Corporate segment recorded net loss of $32 million, wider than a net loss of $27 million in the prior-year quarter. This $5 million increase in net loss was primarily due to $34 million tax benefit in the last-year quarter from the reduction of the deferred tax valuation allowance on capital loss carryovers, largely offset by lower interest and other expenses and a net benefit of $17 million in fourth quarter 2016 from investments in solar energy partnerships.
However, Corporate core losses were $47 million in the reported quarter owing to a $9 million improvement from last year quarter due to lower interest expenses and other expenses along with higher net investment income.
Financial Update
As of Dec 31, 2016, book value per diluted share was $44.35, up 3% year over year. This was due to a 7% decrease in common shares outstanding and dilutive potential common shares. This improvement was partially offset by a 4% decrease in stockholders' equity due to share repurchases and common stockholder dividends in excess of net income during 2016.
Net return on equity (ROE) was 5.2% in fourth quarter 2016 compared with 9.3% in the prior-year quarter.
Share Repurchases
During 2016, the Hartford repurchased 30.8 million common shares for a total of $1.3 billion.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend for fresh estimates. There have been three downward revisions for the current quarter.
Hartford Financial Services Group, Inc. (The) Price and Consensus
Hartford Financial Services Group, Inc. (The) Price and Consensus | Hartford Financial Services Group, Inc. (The) Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', though it is lagging a lot on the momentum front with an 'F'. However, 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 aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.