Hartford Financial Stock To Beat The Revenue Consensus In Q2, Driven By Net Investment Income

Hartford Financial (NYSE: HIG) is scheduled to report its fiscal Q2 2021 results on Thursday, July 29. We expect Hartford Financial to report mixed results, with revenues beating the consensus estimates and earnings missing the mark. The insurance giant missed the revenues and earnings expectations in the last quarter, despite a 7% y-o-y growth in the top-line. The growth was mainly driven by an improvement in its net investment income. However, its net premiums and fees income saw a slight drop in the quarter. Further, the company’s profitability figures suffered in Q1 due to higher operating expenses. We expect the profitability to see some improvement in the second quarter, however, the revenues are likely to follow the same trend.

Our forecast indicates that Hartford Financial’s valuation is around $75 per share, which is 22% above the current market price of around $62. Look at our interactive dashboard analysis on Hartford Financial’s pre-earnings: What To Expect in Q2? for more details. 

(1) Revenues expected to be just ahead of consensus estimates in Q2

Trefis estimates Hartford Financial’s fiscal Q2 2021 revenues to be around $5.25 billion, marginally above the $5.21 billion consensus estimate. Hartford Financial’s revenues of $20.5 billion for the full year 2020 were marginally below the 2019 figure. This could be attributed to two main reasons – first, meager growth in premiums (2% y-o-y); second, a 5% y-o-y dip in the net investment income in 2020 due to interest rate headwinds. That said, the net investment income saw some recovery in the first quarter, although the premiums and fee income were marginally down as compared to the year-ago period. We expect the same trend to continue in the second quarter of FY2021.

Moving forward, we expect the investment yield to remain below the pre-Covid-19 levels for some more time. But growth in invested assets coupled with some improvement in the investment yield will likely push the net investment income up. Further, the premiums and fee income will likely improve with recovery in the economy, although it is unlikely to deliver significant growth in the year. Overall, the HIG’s revenues are likely to remain around $21 billion in FY2021. Our dashboard on Hartford Financial’s revenues offers more details on the company’s segments.

2) EPS is likely to miss the consensus estimates

Hartford Financial’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.20 per Trefis analysis, almost 10% below the consensus estimate of $1.33. The company’s net income dropped 17% y-o-y to $1.7 billion in 2020, primarily due to higher benefits, losses, and loss adjustment expenses. Further, the same trend continued in the first quarter of 2021 also, with net income decreasing by 9% y-o-y. That said, we expect the operating expenses to see some favorable decrease in the second quarter.

The company’s net income margin is likely to see a slight decrease in 2021. This will likely result in an EPS of $4.77 – just below the 2020 figure.

(3) Stock price estimate 22% higher than the current market price

Going by our Hartford Financial valuation, with an EPS estimate of around $4.77 and a P/E multiple of just below 16x in fiscal 2021, this translates into a price of $75, which is 22% above the current market price of around $62.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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