Hartford Financial’s stock (NYSE: HIG) has lost approximately 4% YTD as compared to the 12% rise in the S&P500 index over the same period. Further, at the current price of $73 per share, it is trading 14% below its fair value of $85 – Trefis’ estimate for Hartford Financial’s valuation.
HIG stock has seen extremely strong gains of 50% from levels of $50 in early January 2021 to around $75 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the increase in HIG stock has been far from consistent. Returns for the stock were 41% in 2021, 10% in 2022, and -4% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 12% in 2023 (YTD) – indicating that HIG underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financial sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HIG face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
The insurance giant posted mixed results in the first quarter, with earnings beating the consensus but revenues marginally missing the mark. It posted total revenues of $6.05 billion – up 13% y-o-y, primarily driven by a 9% rise in the earned premiums and an 81% decline in the net realized losses. The premiums mainly benefited from a 10% growth in the property & casualty (P&C) commercial lines and a 7% rise in the group benefits insurance divisions. On the cost front, total benefits, losses & expenses as a % of revenues slightly decreased in the quarter, leading to a 23% y-o-y increase in the adjusted net income to $542 million.
The company’s top line grew 11% y-o-y to $11.96 billion in the first half of FY2023, driven by growth in net premiums and lower net realized losses. Further, the expenses as a % of revenues decreased over the same period. Overall, the net income improved 22% y-o-y to $1.07 billion.
Moving forward, we expect the premiums to drive the third-quarter results. Notably, the consensus estimates for Q3 revenues and earnings are $6.17 billion and $1.98 respectively. Overall, Hartford Financial’s revenues are forecast to touch $24.01 billion in FY2023. Additionally, HIG’s adjusted net income margin is likely to be around 10%, resulting in an adjusted net income of $2.45 billion and an annual GAAP EPS of $7.58. This coupled with a P/E multiple of just above 11x will lead to a valuation of $85.
|S&P 500 Return||1%||12%||93%|
|Trefis Reinforced Value Portfolio||0%||23%||533%|
 Month-to-date and year-to-date as of 10/19/2023
 Cumulative total returns since the end of 2016
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