Hartford Financial To Report Mixed Results In Q4, Is It A Buy?

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Hartford Financial Services Group

Hartford Financial (NYSE: HIG) is scheduled to report its fiscal Q4 2021 results on Thursday, February 3, 2022. We expect Hartford Financial to edge past the revenue consensus, while the earnings will likely miss the mark. HIG, the property & casualty (P&C) insurance giant, posted better than expected results in the last quarter, with revenues increasing by 10% y-o-y to $5.7 billion. This was driven by growth in commercial property & casualty (P&C) insurance and the group insurance premiums figure, followed by a 32% increase in the net investment income (NII). We expect the top-line to follow the same trend in the fourth quarter.

Our forecast indicates that Hartford Financial’s valuation is $79 per share, which is 10% above the current market price of around $72. Our interactive dashboard analysis on Hartford Financial’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Hartford Financial’s revenues marginally decreased in 2020 to $20.5 billion. It was due to slower growth in premiums and fees income, coupled with a 5% drop in net investment income (NII).

  • Premiums and fees income contributes almost 90% of HIG’s revenues. It grew a meager 2% in 2020 due to the Covid-19 crisis and economic slowdown. That said, it has seen some improvement over the first three quarters of 2021, with the cumulative figure increasing 4% y-o-y to $14.5 billion. The growth mainly came from commercial property & casualty (P&C) insurance and group insurance businesses. We expect the same trend to continue in the fourth quarter as well.
  • HIG’s net investment income declined 5% y-o-y in 2020 due to lower investment yields. That said, the cumulative nine-month NII improved 35% y-o-y to $1.7 billion. It was primarily driven by growth in invested assets and higher income from limited partnerships and other alternative investments. We expect the same momentum to continue in the fourth quarter.
  • Overall, we expect Hartford Financial’s revenues to remain around $21.83 billion for FY2021.

Trefis estimates Hartford Financial’s fiscal Q4 2021 revenues to be close to $5.26 billion, 3% above the $5.10 billion consensus estimate. We expect the growth in commercial P&C insurance and net investment income to drive the fourth-quarter results.

The Fed is expected to increase interest rates in 2022. It will likely benefit the investment yields and in turn the NII. Further, premiums are likely to grow in the year with recovery in the economy. Our dashboard on Hartford Financial’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.

2) EPS is likely to miss the consensus estimates

Hartford Financial Q4 2021 adjusted earnings per share (EPS) is expected to be $1.26 per Trefis analysis, almost 7% below the consensus estimate of $1.36. The company’s profitability figures suffered in 2020 due to higher total benefits, losses, and expenses as a % of revenues. That said, the cumulative nine-month adjusted net income increased 37% y-o-y to $1.6 billion. It was due to higher revenues and a decrease in total benefits, losses, and expenses as a % of revenues. We expect the fourth-quarter results to be on similar lines. Overall, Hartford Financial annual EPS is likely to remain around $5.86 for full-year 2021. 

(3) Stock price estimate 10% higher than the current market price

We arrive at Hartford Financial’s valuation, using an EPS estimate of around $5.86 and a P/E multiple of just above 13x in fiscal 2021. This translates into a price of $79, which is 10% above the current market price of approximately $72. 

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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 Returns Feb 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 HIG Return 0% 4% 51%
 S&P 500 Return 0% -5% 102%
 Trefis MS Portfolio Return 0% -9% 257%

[1] Month-to-date and year-to-date as of 2/1/2022
[2] Cumulative total returns since the end of 2016

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