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Hartford Financial Beats Industry YTD: Will the Rally Remain?

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The Hartford Financial Services Group, Inc. HIG has been in investors’ good books, riding high on solid contribution from its Commercial Lines business and strategic initiatives.

Year to date, this Zacks Rank #3 (Hold) has surged 35.1%, outperforming its industry's growth of 15.5%. Over the past 60 days, the stock has seen its 2019 and 2020 earnings estimates being revised 3% and 1.5% upward, respectively.

Its earnings managed to surpass the Zacks Consensus Estimate in the trailing four quarters, the average being 17.7%.

Solid Performance in 2019

This leading insurer closed the pending buyout of The Navigators Group, Inc. in May 2019. The move has likely expanded the company’s product offerings and geographic reach plus strengthened its commercial business lines. The acquisition is also expected to widen the company’s underwriting skills in product capabilities. Further, this strategic action will likely enable Hartford Financial to draw synergies from Navigators’ specialty lines abilities, which might further generate good returns for the company.

Additionally, the company has taken a number of calculated initiatives to improve its risk profile. Hartford Financial has been vending non-core businesses to concentrate on its U.S. operations and enhance its operating leverage. Apart from lowering expenses, boosting profitability and improving returns to shareholders, these divestitures are driving financial flexibility by freeing up more capital.

The company’s net investment income bounced back after suffering low interest rates over the past many years. In the first half of 2019, the same rose 9.4% year over year on the back of higher asset levels.

Hartford Financial’s capital appreciations, repayment of government funds and measures to de-risk its balance sheet increased its financial strength. It also boasts an intelligent capital management strategy, featuring share buybacks and dividend hikes. The company’s dividend has been hiked 200% over the last five years (2013-2018).

Hartford Financial has also been successful in reducing its debt burden over the past several years. In the first nine months of 2019, interest expense of the company decreased almost 15% year over year. The company’s debt to equity ratio stands at 30%, lower than its industry average of 41.7%.

Will the Game Continue in 2020?

Analysts remain positive about the company’s performance in 2020. It is well-poised for growth on the back of its strategic initiatives and growing investment income. Owing to ample balance sheet flexibility, the company would likely continue adding shareholder value.

The company has an impressive Growth Score of A, which analyzes its growth prospects. Its return-on-equity (ROE) reflects growth potential. The company’s trailing 12-month ROE of 12.7% compares favorably with the industry average of 8.1%, reflecting the company’s efficiency in using shareholders’ funds.

For 2020, the Zacks Consensus Estimate for earnings stands at $5.50, hinting at 0.6% growth from the year-earlier reported figure.

Stocks to Consider

Investors interested in the insurance industry can look into some better-ranked stocks like MGIC Investment Corporation (MTG - Free Report) , Kemper Corporation KMPR and Hallmark Financial Services, Inc. HALL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MGIC Investment Corporation provides private mortgage insurance and ancillary services in the United States. The company’s earnings beat estimates in the trailing four quarters by 12.6%, on average.

Kemper is a diversified insurance holding company, providing property and casualty, life and health insurance in the United States. This company’s earnings surpassed estimates in the last four quarters by 16.4%, on average.

Hallmark Financial Services underwrites, markets, distributes and services property/casualty insurance products to businesses and individuals in the United States.  The company’s earnings topped estimates in the preceding four quarters by 95.3%, on average.

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