BRAZIL – 2023/09/03: In this photo illustration, the Hartford Financial Services logo is displayed … [+] on a smartphone screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Hartford Financial’s stock (NYSE: HIG) has gained approximately 26% YTD as compared to the 11% rise in the S&P500 index over the same period. In sharp contrast, Hartford Financial’s peer Travelers (NYSE: TRV) stock was up only 10% YTD. Overall, at the current price of $102 per share, HIG is trading 8% below its fair value of $110 – Trefis’ estimate for Hartford Financial’s valuation.
Amid the current financial backdrop, HIG stock has seen extremely strong gains of 100% from levels of $50 in early January 2021 to around $100 now, vs. an increase of about 40% 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 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 surpassed the consensus estimates in the first quarter of 2024. It posted total revenues of $6.4 billion – up 6% y-o-y, primarily driven by an 8% improvement in the earned premiums and a 15% rise in the net investment income. The premiums mainly benefited from a 10% growth in the property & casualty (P&C) commercial lines segment. On the expense front, total benefits, losses & expenses as a % of revenues declined from 89% to 85.8%. Overall, it led to a 41% y-o-y increase in the adjusted net income to $748 million.
The company’s top line grew 9% y-o-y to $24.5 billion in FY2023, thanks to an 8% increase in the earned premiums and a 6% gain in the NII. Further, net realized losses decreased from $627 million to $188 million. In terms of expenses, total costs & benefits as a % of revenues decreased in the year. Altogether, the adjusted net income was $2.48 billion – up 38% y-o-y.
Moving forward, we expect the Q2 results to be on similar lines. Overall, Hartford Financial’s revenues are forecast to touch $25.99 billion in FY2024. Additionally, HIG’s adjusted net income margin is likely to slightly improve in the year, resulting in an adjusted net income of $3.05 billion and an annual GAAP EPS of $9.98. This coupled with a P/E multiple of 11x will lead to a valuation of $110.
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