[Updated 12/29/2021] Hartford Financial Valuation Update
Hartford Financialâs stock (NYSE: HIG) has gained close to 41% YTD, and at its current price of $69 per share, it is trading 13% below its fair value of $79 â Trefisâ estimate for Hartford Financialâs valuation. The insurance giant outperformed the street expectations in the third-quarter results, with total revenues increasing 10% y-o-y to $5.7 billion. This was because of a 5% y-o-y growth in total earned premiums and a 32% jump in the net investment income. The premiums figure benefited from a 9% rise in the commercial property & casualty (P&C) insurance unit, supported by some growth in the group insurance segment. Further, the net investment income improved due to higher returns on limited partnerships and other alternative investments. Overall, the above revenue growth translated into an adjusted net income of $476 million â up 5% y-o-y.
The property & casualty insurance giant posted a marginal decrease in 2020 revenues to $20.5 billion. It was partly due to negative growth in the net investment income and partly due to slow growth in premiums. However, the economic conditions have seen some recovery over the first three quarters of 2021. The company posted a 9% y-o-y increase in the cumulative nine-month revenues to $16.6 billion. This was led by a 35% jump in the net investment income and a 4% rise in the total earned premiums and fees income. We expect the same trend to continue in the fourth quarter of 2021, enabling Hartford Financial revenues to touch $21.8 billion in the year. Additionally, HIGâs net income margin is likely to remain around the same level as the previous year. It will likely result in an adjusted net income of $1.8 billion and an EPS figure of $5.41. The EPS figure coupled with a P/E multiple of just below 15x will lead to the valuation of $79.
Below youâll find our previous coverage of Hartford Financial stock where you can track our view over time.
[Updated 10/1/2021] Hartford Financial Stock Has A Limited Upside
Hartford Financialâs stock (NYSE: HIG) has gained close to 43% YTD, and at its current price of $70 per share, it is trading 9% below its fair value of $78 â Trefisâ estimate for Hartford Financialâs valuation. The property and casualty (P&C) insurance giant surpassed the consensus estimates for revenues and earnings in the second quarter of 2021, and its stock has gained approximately 11% since then. It reported total revenues of $5.6 billion, 10% more than the year-ago period. This was mainly driven by a 71% y-o-y growth in net investment income coupled with higher net realized capital gains. Further, earned premiums and fees income increased 7% y-o-y in the quarter. The growth in earned premiums and fees income was mainly driven by a 9% y-o-y increase in the commercial property & casualty insurance stream. Moreover, the higher revenues translated into a 93% growth in net income, which was also supported by lower operating expenses.
The company reported total revenues of $20.5 billion in 2020â slightly below the 2019 figure. The top-line suffered due to slow growth in premium and fee income coupled with a decrease in net interest income. While the premiums struggled due to the shift in customer focus from long-term to short-term survivability due to the Covid-19 crisis, the net investment income was down because of the lower investment yields. Further, the premiums continued to suffer in the first quarter of 2021, also. However, the net investment income saw some recovery. That said, premiums and fees income did report a 7% y-o-y growth in the second quarter of 2021, thanks to the increase in the commercial P&C segment. This was followed by a significant jump in net investment income driven by higher returns on limited partnerships and other alternative investments.
Moving forward, we expect the net investment income to improve in FY2021, primarily due to some recovery in the investment yields and growth in invested assets. Further, the premiums and fees income is likely to see positive growth. Overall, Hartford Financial revenues are likely to remain around $21.2 billion in the year. Additionally, HIGâs net income for the first half of 2021 has increased 56% y-o-y, due to lower operating expenses. We expect the firm to report a net income of around $1.7 billion in FY2021, resulting in an EPS of $5.07. The EPS figure coupled with a P/E multiple of just above 15x will lead to the valuation of $78.
[Updated 05/14/2021] Hartford Financial Stock Has A 15% Upside
Hartford Financial stock (NYSE: HIG) has gained more than 100% since the March 23 lows of last year and at its current price of $65 per share, it is 15% below its fair value of $75 â Trefisâ estimate for Hartford Financialâs valuation. HIG stock has rallied almost 32% YTD and most of this rise came after it received an unsolicited, non-binding takeover bid from rival insurer Chubb Ltd. in March. Notably, Hartford has rejected the acquisition bid from Chubb Ltd.
Hartford Financial recently released its first-quarter FY2021 results, with the revenues and earnings missing the consensus estimates. It reported total revenues of $5.3 billion â up 7% y-o-y, mainly driven by 11% growth in its net investment income, partially offset by a marginal drop in the premiums and fee revenue. Notably, net realized capital gains (losses) increased from -$231 million in the year-ago period to $80 million. That said, its net income fell by 9% y-o-y to $249 million in the quarter, mainly driven by higher mortality in group life insurance due to the impact of the Covid-19 crisis and an increase in current accident year catastrophes.
The company reported $20.52 billion in revenues for the full-year 2020 â slightly below the 2019 figure. The total earned premiums grew by a modest 2% y-o-y in 2020, but the growth was due to the acquisition of the Navigators Group. If we exclude the effect of acquisition, premiums suffered in the year across all segments due to the impact of the Covid-19 crisis. While the economy is expected to recover in FY2021, earned premiums are unlikely to deliver significant growth in the year. The revenues were also negatively affected due to a 5% y-o-y dip in the net investment income in 2020 due to lower investment yields. While the investment yields are unlikely to make a swift revival to the pre-Covid-19 levels, we expect it to improve to some extent in the current year. This coupled with growth in invested assets will likely benefit the net investment income. Overall, the above factors will likely restrict Hartford Financialâs revenues to $21 billion in FY2021. Additionally, the net income margin is expected to slightly decline in the year, leading to an EPS of $4.77. This coupled with a P/E multiple of just below 16x, will lead to the valuation of $75.
[Updated 03/23/2021] Should You Hold On To Hartford Financial Stock After A Gain Of 17% Last Week?
After gaining 17% over the last five trading days (one week), Hartford Financial stock (NYSE: HIG) is currently trading around $67, which is 15% above its fair value of $59 â Trefisâ estimate for Hartford Financialâs valuation. The stock price rallied after HIG received an unsolicited, non-binding takeover bid of $23.4 billion in cash and stock from rival insurer Chubb Ltd. The offer values HIG at $65 per share, which is 11% more than Trefisâ valuation estimate. Hartford has confirmed the receipt of the proposal, however, it hasnât replied to it yet. The investors are positive about the news of the acquisition offer, as, in the current shape, it is likely to be the largest acquisition in the U.S. Property & Casualty (P&C) insurance business.
Hartford Financial is the largest provider of property and casualty (P&C) and life insurance products in the U.S. Its revenues suffered in 2020 due to the impact of the Covid-19 crisis and interest rate headwinds, which restricted the FY2020 revenues to $20.5 billion. While we expect the premiums to see a little improvement in the current year, interest rates are unlikely to recover to the pre-Covid-19 levels anytime soon. Overall, we expect Hartford Financialâs revenues to touch $20.9 billion in FY2021. Further, the EPS figure is likely to remain around $4.53. This coupled with a P/E multiple of just below 13x, will lead to the valuation of $59.
[Updated 03/11/2021] Hartford Financial Stock Is Trading Slightly Below Its Fair Value
Hartford Financial stock (NYSE: HIG) has rallied 77% since the March 23 lows of last year and at its current price of $55 per share, it is 7% below its fair value of $59 â Trefisâ estimate for Hartford Financialâs valuation. The insurance giant, which is one of the largest providers of property and casualty (P&C) and life insurance products in the U.S., surpassed consensus estimates in its recently released fourth-quarter results. It reported total revenues of $5.33 billion, marginally lower than the year-ago period. This was mainly driven by a 2% y-o-y drop in earned premiums, partially offset by a slight increase in fee income and net investment income. Further, its net income fell by 2% y-o-y to $532 million, mainly driven by higher mortality in group life insurance due to the impact of the Covid-19 crisis and charge for asbestos and environmental (A&E) reserve development.
The company reported $20.52 billion in revenues for the full-year 2020 â marginally lower than the 2019 figure. While the earned premiums increased by 2% y-o-y, it was mainly due to a 7% growth in commercial P&C insurance driven by the acquisition of the Navigators Group. If we exclude the impact of acquisition from premiumsâ amount, total commercial P&C written premiums declined 4% in 2020 due to lower new business and other changes to in-force policies. Its small business insurance and workers compensation premiums suffered due to the impact of the Covid-19 crisis, as a decline in business activity negatively impacted the cash-flow of small business entities, forcing them to curtail their operations and lay-off workers in many cases. Further, personal lines and group insurance premiums have also decreased in the year. Additionally, net investment income, which is very important for the profitability of any insurance company, dipped by 5% y-o-y due to the lower interest rate environment. That said, we expect the same trend to continue in the current year. Further, recovery in the interest rates to the pre-Covid-19 levels is likely to take some time. Overall, the above factors will likely restrict Hartford Financialâs revenues to $20.9 billion in FY2021. Further, the net income margin is likely to see a slight drop in the year, leading to an EPS of $4.53 for FY2021. This coupled with a P/E multiple of just below 13x, will lead to the valuation of $59.
[Updated 09/02/2020] Hartford Financial Stock Can Still Grow 30%
Hartford Financial stock (NYSE: HIG) lost more than 50% – dropping from $61 at the end of 2019 to around $31 in late March â then spiked 32% to around $40 now. But that means itâs still 34% lower than where it started the year!
This can be attributed to 2 factors. The Covid-19 outbreak and economic slowdown meant that market expectations for 2020 and the near-term consumer demand plunged. This could lead to lower investment yields and a drop in investment premiums due to a shift in customer focus from long term to near term survival, weighing on Hartford Financialâs top line. However, the multi-billion-dollar Fed stimulus in late March helped arrest the negative market sentiment, which is also evident from the stock recovery after that point.
But we believe there is more upside to come over the coming months
Trefis estimates Hartford Financialâs valuation to be around $52 per share – about 30% above the current market price – based on an upcoming trigger explained below and one risk factor.
The trigger is an improved trajectory for Hartford Financialâs revenues over the second half of the year. We expect the company to report $20.1 billion in revenues for 2020 â around 3% lower than the figure for 2019. Our forecast stems from our belief that the economy is likely to see some recovery in Q3. The recently released U.S consumer spending data also indicates a m-o-m growth of 8.5%, 5.6%, and 1.9% in May, June, and July respectively, which indicates a growth trend. If the momentum continues, it is likely to boost the net premiums amount and income from investment of insurance premiums â which is very critical for the profitability of any insurance company. This, in turn, would benefit the revenue trajectory over the coming months. The net income for the year is expected to drop to $1.7 billion â down 19% y-o-y, reducing the EPS figure to $4.76 for FY2020.
Subsequently, Hartford Financialâs revenues are expected to improve to $20.7 billion in FY2021, mainly driven by slight growth in commercial property & casualty and the group life insurance segment. Further, the net income margin is likely to see some recovery, leading to an EPS of $5.26 for FY2021.
Finally, how much should the market pay per dollar of Hartford Financialâs earnings? Well, to earn close to $5.26 per year from a bank, youâd have to deposit around $580 in a savings account today, so about 110x the desired earnings. At Hartford Financialâs current share price of roughly $40, we are talking about a P/E multiple of just below 8x. And we think a figure closer to 10x will be appropriate.
That said, the insurance business has some uncertainty right now. Growth looks less promising, and near-term forecasts are less than rosy. Whatâs behind that?
Hartford is one of the largest providers of property and casualty insurance products and life insurance products in the U.S. It has around $36.5 billion in identifiable assets between its property & casualty and group insurance segments (as per FY 2019 data). The company drives around 11% of its total revenues from income generated by the investment of insurance premiums. Therefore, its business model is very sensitive toward movement in investment yields. While the S&P 500 index is on a growth trajectory (up 55%) since the March bottom, any further weakening in the economic condition or an unanticipated uptick in the Covid-19 case count can reverse the momentum and could negatively affect HIGâs revenues.
The same trend is visible across Hartford Financialâs peer â Prudential Financial. Its revenues are also likely to suffer in FY2020 due to lower premiums and a drop in investment income. This would explain why Prudential Financial stock currently has a stock price of over $68 but looks slated for an EPS of around $10.09 in FY2021.
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