Is Hartford Financial’s stock price fair?
Hartford Financial (NYSE: HIG) stock has gained about 5% year-to-date compared to the S&P500 index’s 5% decline over the same period. Additionally, at its current price of $72 per share, it has 15% upside potential from its fair value of $83 – Trefis’ estimate for Hartford Financial Rating. The P&C insurance giant (P&C) recently released its fourth quarter results, beating consensus estimates for revenue and profit. It reported total revenue of $5.8 billion, 9% higher than in the fourth quarter of 2020. This was due to an increase in net realized investment gains from $102 million to $212 million , followed by 7% year-on-year growth in total premiums. Premiums mainly benefited from a 12% year-over-year increase in the commercial P&C segment. Overall, adjusted net income increased 36% year-over-year to $724 million, driving quarterly EPS of $2.10. The improvement in profitability figures is due to a reduction in total profit and expenses as a % of revenue from 87.8% to 84.5%.
Total company revenue increased 9% year-on-year to $22.4 billion in 2021. This was primarily driven by 5% growth in premiums and other considerations, coupled with an increase in 25% of net investment income. Premiums and other considerations benefited from a 7% rise in the commercial P&C segment, followed by 3% growth in group benefits and a 20% jump in the Hartford fund divisions . Notably, Hartford fund growth was driven by higher assets under management (AuM) – up 13% year-on-year to $157.9 billion. Overall, revenue growth coupled with lower total benefits and expenses – down 90% to 87%, resulted in a 37% increase in adjusted net income to $2.3 billion. dollars.
Insurance companies invest premiums in fixed income securities and other means to generate additional income, which is very important for their profitability. While investment returns have fallen due to the Covid-19 crisis, we expect improving interest rates to boost returns. In addition, premium and commission income is expected to increase as the economy recovers. Globally, Hartford Financial Revenue are expected to remain around $22.5 billion in fiscal 2022. Additionally, HIG’s adjusted net income margin is expected to hover around 2021 levels, resulting in adjusted net income of 2.4 billion and an annual EPS of $7.07. This, coupled with a P/E multiple just below 12x, will lead to a valuation of $83.
Here you will find our previous coverage of Hartford Financial stocks, where you can follow our view over time.
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