[Updated 05/17/2021] Hartford Financial Valuation Update
Hartford Financial stock (NYSE: HIG) has gained more than 100% since the March 23 lows of last year and at its current price of $65 per share, it is 15% below its fair value of $75 – Trefis’ estimate for Hartford Financial’s valuation. HIG stock has rallied almost 32% YTD and most of this rise came after it received an unsolicited, non-binding takeover bid from rival insurer Chubb Ltd. in March. Notably, Hartford has rejected the acquisition bid from Chubb Ltd.
Hartford Financial recently released its first-quarter FY2021 results, with the revenues and earnings missing the consensus estimates. It reported total revenues of $5.3 billion – up 7% y-o-y, mainly driven by 11% growth in its net investment income, partially offset by a marginal drop in the premiums and fee revenue. Notably, net realized capital gains (losses) increased from -$231 million in the year-ago period to $80 million. That said, its net income fell by 9% y-o-y to $249 million in the quarter, mainly driven by higher mortality in group life insurance due to the impact of the Covid-19 crisis and an increase in current accident year catastrophes.
The company reported $20.52 billion in revenues for the full-year 2020 – slightly below the 2019 figure. The total earned premiums grew by a modest 2% y-o-y in 2020, but the growth was due to the acquisition of the Navigators Group. If we exclude the effect of acquisition, premiums suffered in the year across all segments due to the impact of the Covid-19 crisis. While the economy is expected to recover in FY2021, earned premiums are unlikely to deliver significant growth in the year. The revenues were also negatively affected due to a 5% y-o-y dip in the net investment income in 2020 due to lower investment yields. While the investment yields are unlikely to make a swift revival to the pre-Covid-19 levels, we expect it to improve to some extent in the current year. This coupled with growth in invested assets will likely benefit the net investment income. Overall, the above factors will likely restrict Hartford Financial’s revenues to $21 billion in FY2021. Additionally, the net income margin is expected to slightly decline in the year, leading to an EPS of $4.77. This coupled with a P/E multiple of just below 16x, will lead to the valuation of $75.
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