Why Is Hartford Financial (HIG) Up 3.2% Since the Last Earnings Report?

It has been about a month since the last earnings report for The Hartford Financial Services Group, Inc. HIG. Shares have added about 3.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

HartFord Financial’s Q3 Earnings Beat, Down Y/Y

Hartford Financial reported third-quarter 2017 adjusted operating earnings of 60 cents per share that beats our Zacks Consensus Estimate of 59 cents by 1.7%. However, earnings declined 43% year over year primarily due to higher current accident year catastrophe losses.

Hartford Financial’s net income of $234 million also declined 47% year over year due to lower revenues.

Total operating revenue of Hartford Financial came in at $4.7 billion, down  0.6% year over year. The downside was primarily caused by lower earned premiums and net investment income, both on a year-over-year basis.

Quarterly Segment Results

Property & Casualty (P&C):

Commercial Line

During the third quarter, Commercial Lines total revenues were $2 billion, up 1% year over year.

Commercial Lines net income of $90 million and core earnings of $81 million declined  66.4% and 66.7%, respectively, year over year due to higher current accident year catastrophe losses.

Current accident year catastrophe losses for Commercial Lines totaled $270 million, before tax, including $137 million from Hurricane Harvey and $119 million from Hurricane Irma. This compares unfavorably with last year quarter’s catastrophe losses of $43 million, before tax.

The Commercial Lines underlying combined ratio was 93.2%, a deterioration of 320 basis points (bps) from the prior-year quarter, primarily due to an increase in the expense ratio caused by higher variable compensation accruals as well as higher loss ratios in workers' compensation and general liability

Personal Lines

Personal Lines total revenue was $994 million, down 5.7% year over year.

This segment generated net income and core earnings of $8 million and $7 million, both of which declined 76% from third-quarter 2016. The downsides stemmed from higher current accident year catastrophe losses.

Current accident year Personal Lines catastrophe losses totaled $82 million, before tax that includes $38 million from Hurricane Harvey and $38 million from Hurricane Irma. This compares unfavorably with $37 million, before tax in the prior year quarter.

The Personal Lines underlying combined ratio was 94.9%, an improvement of 120 bps from third-quarter 2016, due to lower auto and homeowners loss ratios and a relatively stable expense ratio

Group Benefits:

Group Benefits’ total revenue remained flat at $926 million year over year.

This segment generated net income and core earnings of $71 million and $66 million, up 15% and 29% respectively from third-quarter 2016. The upsides were driven by lower group life and group disability losses

The total loss ratio of 74.7%, that improved 440 points over the last year quarter driven by  a 230 bps improvement in the group life loss ratio and a 640 bps improvement in the group disability loss ratio.

Mutual Funds:

Mutual Funds operating revenues grew 14.6% year over year to $204 million.

Hartford Financial reported Mutual Funds net income and core earnings of $26 million, each rising 24% year over year, driven by an  increase in assets under management (AUM) over the past year quarter.

Average AUM increased 18% to $111.7 billion, mainly driven by positive net flows and market appreciation, partially offset by the continued runoff of Talcott Resolution AUM.

Talcott Resolution:

Talcott Resolution operating revenues declined 10.5% year over year to $539 million.

Net income came at $80 million, inching up 2.5% from third-quarter 2016 due to a market-driven unlock benefit, largely offset by lower net investment income and lower fee income due to the runoff of the block

Core earnings declined 20% to $83 million, principally due to lower Limited Partnerships  income and lower fee income with the runoff of the block.

Corporate:

Corporate segment grew 33.3% year over year to $8 million.

The Corporate segment recorded net loss and core loss of $59 million each, wider 7.2% and 9.2% respectively than the year- ago quarter.

Financial Update

Book value per diluted share as of Sep 30, 2017 rose 7% from Dec. 31, 2016 to $47.33.

Net income return on equity was 2.7% in the quarter, down 490 bps from the last-year quarter.

Core earnings return on equity rose to 60 bps  to 8.2%.

Share Repurchases

During the third quarter, Hartford Financial repurchased 6 million common shares for approximately $325 million.

In October 2017, the company had repurchased additional 0.9 million common shares for $52 million.

During the third quarter, $85 million of common dividends were paid to shareholders for a total return of capital to shareholders of $410 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been four moves down in the last two months. In the past month, the consensus estimate has shifted lower by 17.2% due to these changes.

The Hartford Financial Services Group, Inc. Price and Consensus

 

The Hartford Financial Services Group, Inc. Price and Consensus | The Hartford Financial Services Group, Inc. Quote

VGM Scores

At this time, Hartford Financial's stock has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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