Hartford Financial Stock Is Undervalued
Hartford Financial’s stock (NYSE: HIG) has lost roughly 7% YTD as compared to the 13% rise in the S&P500 index over the same period. Further, at the current price of $70 per share, it is trading 17% below its fair value of $85 – Trefis’ estimate for Hartford Financial’s valuation. The property & casualty (P&C) insurance giant posted mixed results in the first quarter, with earnings being in-line with expectations but revenues missing the mark. It reported total revenues of $5.9 billion – up 10% y-o-y, primarily driven by a 9% rise in the earned premiums. The premiums mainly benefited from growth in the property & casualty (P&C) commercial lines and group benefits insurance divisions. On the cost front, total benefits, losses & expenses as a % of revenues slightly decreased in the quarter, resulting in a 21% y-o-y improvement in the adjusted net income to $530 million.
The company’s top line suffered a marginal drop to $22.36 billion in FY2022, despite an 8% rise in the earned premiums. It was because the positive impact was more than offset by lower net investment income, a drop in fee income, and a net realized loss of -$627 million. Further, total expenses as a % of revenues increased in the year. Overall, it led to a 23% y-o-y decrease in the adjusted net income to $1.79 billion.
Moving forward, we expect the same trend to continue in Q2. Notably, the consensus estimates for Q2 revenues and earnings are $6.05 billion and $1.95 respectively. Overall, Hartford Financial’s revenues are estimated to remain around $24.4 billion in FY2023. Additionally, HIG’s adjusted net income margin is likely to be around 10%, resulting in an adjusted net income of $2.4 billion and an annual GAAP EPS of $7.46. This coupled with a P/E multiple of just above 11x will lead to a valuation of $85.
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| Returns | Jun 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| HIG Return | 3% | -7% | 48% |
| S&P 500 Return | 4% | 13% | 94% |
| Trefis Multi-Strategy Portfolio | 5% | 15% | 260% |
[1] Month-to-date and year-to-date as of 6/26/2023
[2] Cumulative total returns since the end of 2016
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