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The Hanover Insurance Up 16% YTD: Will the Rally Continue?

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The Hanover Insurance Group’s THG shares have rallied 16.2% year to date, outperforming the industry's growth of 6.2%.

Strategic growth initiatives, strong market presence and effective capital deployment should continue to drive the stock higher.

With a market capitalization of $5.4 billion, average volume of shares traded in the last three months was 0.3 million.

Is the Bull Run Likely to Continue?

This Zacks Rank #2 (Buy) provider of property and casualty insurance products and services in the United States has a decent record of delivering positive earnings surprise in the last three quarters, reflecting operational excellence.

The Hanover Insurance Group should continue to benefit from solid market presence, stable retention and rate levels as well as and successful agency partnerships. The company targets 6-7% premium growth over the long term.

The company remains focused on expanding product lines that meet or exceed its target returns. To that end, it withdrew some weak-performing business, including Commercial Auto and some portion of its Program business. Also, the divestment of Chaucer in April 2019 lowered volatility and the company’s exposure to catastrophe and provided additional capital flexibility.

The company also remains focused on lowering costs and estimates expense ratio improvement of 20 basis points going forward.

The Hanover Insurance Group’s return on equity was 10.4% in the trailing 12-month period, higher than the industry average of 6.8%. Return on equity is a profitability measure that identifies the company’s efficiency in utilizing its shareholders’ funds.  The company aims to deliver operating return on equity between 13 and 14% over the long run.

The company maintains an active capita management strategy. The Hanover Insurance Group’s five-year total shareholder return was 118% versus S&P 500’s 50%. Apart from hiking dividend each year, the company also paid out a special dividend in January 2019. Its dividend yield of 1.8% betters the industry average of 0.4%. Further, in June, the company entered into a $150 million accelerated share repurchase agreement.

The Zacks Consensus Estimate for the company’s 2019 and 2020 earnings indicates improvement of 20.8% and 9.8%, respectively from the year-ago reported figure. Also,  estimates for 2019 and 2020 have moved up 1.2% and 1.1%, respectively, in the past 60 days.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include Cincinnati Financial (CINF - Free Report) , Hallmark Financial Services HALL and Donegal Group DGICA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial provides property casualty insurance products in the United States. The company delivered 32.81% positive surprise in the last reported quarter.

Hallmark Financial underwrites, markets, distributes, and services property/casualty insurance products to businesses and individuals in the United States. The company delivered 20.22% positive surprise in the last reported quarter.

Donegal Group provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England, and southern states. The company delivered 160.00% positive surprise in the last reported quarter.

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