Is Hartford Financial Stock Fairly Priced?

Hartford Financial’s stock (NYSE: HIG) has lost approximately 9% YTD as compared to the 24% drop in the S&P500 index over the same period. Further, at its current price of $63 per share, it has an upside potential of 36% to its fair value of $85 – Trefis’ estimate for Hartford Financial’s valuation. The property & casualty (P&C) insurance giant posted better than expected results in the second quarter of 2022, despite revenues decreasing by 4% y-o-y to $5.4 billion. The drop was mainly due to a drop in net realized gains from $147 million to -$338 million and a 7% decline in net investment income (NII). That said, earned premiums increased 8% y-o-y to $4.8 billion driven by a 12% growth in the commercial P&C segment and a 7% rise in the group insurance unit. On the cost front, total benefits, losses, and expenses increased 8% y-o-y, which coupled with lower revenues resulted in a 51% decrease in the adjusted net income to $437 million.

The company’s top line grew 9% y-o-y to $22.4 billion in 2021. However, the trend changed in the first half of 2022, with total revenues witnessing a marginal drop to $10.76 billion. It was because of lower NII and a decrease in net realized gains, partially offset by higher earned premiums. Further, total benefits, losses & expenses as a % of revenues increased in the first half. Overall, it led to a 23% y-o-y drop in the adjusted net income to $877 million. 

Moving forward, we expect the premiums to continue their growth trajectory over the subsequent quarters. The consensus estimates for Q3 revenues and earnings are $5.59 billion and $1.59 respectively. Overall, Hartford Financial’s revenues are estimated to remain around $22.4 billion in FY2022. Additionally, HIG’s adjusted net income margin is likely to see some improvement in the year, resulting in an adjusted net income of $2.52 billion and an annual GAAP EPS of $7.59. This coupled with a P/E multiple of just above 11x will lead to the valuation of $85.

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[1] Month-to-date and year-to-date as of 9/30/2022
[2] Cumulative total returns since the end of 2016

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