Up 19% YTD, What To Expect From Hartford Financial Stock?

Hartford Financial’s stock (NYSE: HIG) has gained approximately 19% YTD as compared to the 6% rise in the S&P500 index over the same period. Further, at the current price of $96 per share, it is trading 6% below its fair value of $102 – Trefis’ estimate for Hartford Financial’s valuation. 

Amid the current financial backdrop, HIG stock has seen extremely strong gains of 90% from levels of $50 in early January 2021 to around $95 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. HIG is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 41% in 2021, 10% in 2022, and 6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 Financials sector including JPM, V, 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 outperformed the street estimates in the fourth quarter of 2023. It posted total revenues of $6.4 billion – up 6% y-o-y, primarily driven by an 8% rise in the earned premiums. The premiums mainly benefited from a 9% growth in property & casualty (P&C) and a 6% increase in group benefits segments. On the expense front, total benefits, losses & expenses as a % of revenues declined from 87.7% to 85%. Overall, it resulted in a 30% y-o-y improvement in the adjusted net income to $766 million.

The company’s top line grew 9% y-o-y to $24.5 billion in FY2023. It was because of an 8% rise in the earned premiums figure, followed by a 6% increase in the net investment income. Further, net realized losses decreased from $627 million to $188 million. In terms of costs, total expenses as a % of revenues witnessed a favorable drop, leading to an operating margin of 12.6% vs 10.1%. Altogether, the adjusted net income was $2.48 billion – up 38% y-o-y.

Moving forward, we expect the same trend to continue in Q1. Overall, Hartford Financial’s revenues are estimated to touch $26.36 billion in FY2024. Additionally, HIG’s adjusted net income margin is likely to see some improvement in the year, resulting in an adjusted net income of $3.06 billion and an annual GAAP EPS of $10.09. This coupled with a P/E multiple of just above 10x will lead to a valuation of $102.

[1] Returns as of 3/1/2024
[2] Cumulative total returns since the end of 2016

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