Hartford Financial (NYSE: HIG) is scheduled to report its fiscal Q3 2021 results on Friday, October 29. We expect Hartford Financial to top the earnings and revenue expectations. The property & casualty (P&C) insurance giant outperformed the consensus estimates in the last quarter, with revenues increasing by 10% y-o-y to $5.6 billion. This was because of a 71% y-o-y jump in the net investment income coupled with higher net realized capital gains. The earned premiums and fees income increased 7% y-o-y mainly driven by growth in the commercial P&C insurance segment. Further, higher revenues and lower operating expenses as a % of revenues led to a 93% y-o-y growth in the net income figure for the quarter. We expect the top-line to follow the same trend in the third quarter.
Our forecast indicates that Hartford Financial’s valuation is $78 per share, which is 6% above the current market price of around $73. Our interactive dashboard analysis on Hartford Financial’s Earnings Preview has more details.
(1) Revenues expected to edge past the consensus estimates
- Hartford Financial Stock Lost 4% YTD, Is Correction In The Cards?
- Hartford Financial Stock Is Undervalued
- Is Hartford Financial Stock Fairly Priced?
- Hartford Financial Stock Lost 1.2% In One Week, What’s Next?
- Is Hartford Financial Stock Fairly Priced?
- Is Hartford Financial Stock Attractive At The Current Levels?
Hartford Financial’s revenues for full-year 2020 were $20.5 billion – just below the year-ago period. This was due to slower growth in premiums and fees income, coupled with a 5% drop in net investment income.
- HIG generates close to 90% of the total revenues from premiums and fees income. The revenue stream grew at an average annual rate of 8% over 2017-2019. However, its growth rate slowed down to just 2% y-o-y in 2020, due to the impact of the Covid-19 crisis. It was because of a 6% y-o-y decline in the P&C personal lines sub-segment. The unit suffered due to lower total premiums in the automobile insurance category, which drives the majority of its revenues. That said, the pattern changed in the first and second quarters of 2021, with personal lines posting some recovery in the premiums and fees income. We expect the same trend to continue in the third quarter as well.
- Although the company generates just 9% of the total revenues from the net investment income (NII), it is very important for its profitability. Hartford posted a 5% y-o-y drop in NII in 2020, mainly due to lower investment yields in the year. The investment yields suffered due to the zero-rate policy of the Fed, in response to the Covid-19 crisis. That said, the NII has improved 37% y-o-y in the first six months of 2021, mainly due to growth in invested assets and higher income from limited partnerships and other alternative investments. We expect the same momentum to continue in the third quarter.
- Overall, we expect Hartford Financial’s revenues to touch $21.2 billion for FY2021.
Trefis estimates Hartford Financial’s fiscal Q3 2021 revenues to be around $5.37 billion, 2% above the $5.25 billion consensus estimate. We expect the growth in commercial P&C insurance and net investment income to drive the third-quarter results.
Moving forward, the total premiums and fees income are likely to see some improvement over the subsequent quarters, with improvement in the economic conditions. Further, the investable assets are likely to maintain their growth momentum in FY2021. The NII is likely to continue its growth momentum in the year driven by an increase in investable assets and higher revenue from limited partnerships and other alternative investments. However, low investment yields will likely offset some of the positive effects. Our dashboard on Hartford Financial’s revenues offers more details on the company’s operating segments along with our forecast for the next two years.
2) EPS is likely to beat the consensus estimates
Hartford Financial Q3 2021 adjusted earnings per share (EPS) is expected to be $0.95 per Trefis analysis, almost 10% above the consensus estimate of $0.86. The company reported adjusted net income of $1.72 billion in 2020 – down 17% y-o-y, primarily due to a drop in total benefits, losses, and expenses as a % of revenues from 87.7% to 89.7% in the year. However, the expense percentage decreased over the first and second quarters of 2021. This resulted in a 56% y-o-y increase to $1.1 billion in adjusted net income for the first half of the year. We expect the expenses to slightly increase in the third quarter.
Going forward, we expect Hartford Financial’s net income margin in FY2021 to hover around the 2020 levels, leading to an adjusted net income of $1.74 billion – marginally above the year-ago period. It will likely result in an EPS of $5.07.
(3) Stock price estimate 6% higher than the current market price
We arrive at Hartford Financial’s valuation, using an EPS estimate of around $5.07 and a P/E multiple of just above 15x in fiscal 2021. This translates into a price of $79, which is 6% above the current market price of approximately $73.
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
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates