November 24, 2020

Strategic Initiatives Aid Hartford Financial, High Costs Ail

The Hartford Financial Services Group, Inc. HIG has been in investors’ good books owing to strategic initiatives and financial strength.

Its return-on-equity (ROE) reflects growth potential. The company’s trailing 12-month ROE of 12.6% compares favorably with the industry average of 7.5%, reflecting its efficiency in utilizing its shareholders’ funds.

Now let’s see what has been working in the stock’s favor.

The company has been taking up strategic initiatives over time to improve its risk profile. A series of well-executed strategic dispositions of its legacy run-off businesses also helped the company. Hartford Financial has been vending non-core businesses for a while now to concentrate on its U.S. operations and enhance its operating leverage. Apart from lowering expenses, boosting profitability and improving returns to its shareholders, these divestitures are increasing the company’s financial flexibility by freeing up more capital.

The company has been putting in efforts to solidify its portfolio through acquisitions. Last year, it bought Navigators Group, a specialty insurer for a deal value of $2.1 billion. This strategic move helped the company expand its product offerings and geographic reach plus strengthen its commercial business lines.

Hartford Financial’s capital appreciations, repayment of government funds and measures to de-risk its balance sheet raised its financial strength. It also boasts an intelligent capital management strategy, featuring share buybacks and dividend hikes. The company’s dividend yield of 3.5% stands above the industry’s average of 2.8%. Although it paused its share buyback program in response to the current volatile environment, it is continuing with its dividend payment, which makes us positive about its capital deployment policy.

Total debt is 25.5%  of its total equity is lower than the industry average of 44.5%. It took several initiatives to improve its liquidity. Thus, its balance sheet position remains impressive.

However, the company has been witnessing a rise in expenses since 2015. Total benefits and expenses of the company climbed 5.7% and 3.3% in 2019 and during the first six months of 2020, respectively, due to higher benefits, losses and loss adjustment expenses, amortization of deferred acquisition costs, insurance operating costs and other expenses, etc.
The company flaunts a stellar surprise history. Its earnings managed to beat estimates in all the trailing four quarters, the average being 6.6%.

Stocks to Consider

Investors interested in the same space can take a look at some stocks worth considering, such as Old Republic International Corporation ORI, The Allstate Corporation ALL and Assurant Inc. AIZ.

Old Republic International Corporation is an insurance holding company. Its earnings managed to surpass estimates in all the trailing four quarters, the average being 36.7%.

Allstate Corporation is the third-largest property-casualty (P&C) insurer and the largest publicly-held personal lines carrier in the United States. Its bottom line beat estimates in each of the last four quarters, the average being 25.2%.

Assurant is a global provider of risk management solutions in the housing and lifestyle markets, protecting where people live and the goods they buy. The company’s earnings managed to beat estimates in three of the trailing four quarters (missing the mark in one), the average surprise being 6%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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