Why Is Hartford Financial (HIG) Down 2.9% Since its Last Earnings Report?

It has been about a month since the last earnings report for Hartford Financial Services Group, Inc. (The) HIG. Shares have lost about 2.9% in that time frame.

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

Hartford Financial's Q4 Earnings Surpass Estimates

Hartford Financial reported fourth-quarter 2017 adjusted operating earnings of 81 cents per share, beating the Zacks Consensus Estimate of 74 cents by 9.46%. The bottom line also increased 5% year over year on lower share count.

Total operating revenues came in at $4.5 billion, up 9.7%. This upside was primarily caused by higher earned premiums and higher fee revenues, both on a year-over-year basis.

Quarterly Segment Results

Property & Casualty

Commercial Lines

During the quarter, the segment’s total revenues were $1.9 billion, up 4.1% year over year.

Net income of $286 million and core earnings of $282 million increased 8.3% and 3%, respectively, year over year.

The segment’s underlying combined ratio was 93%, a deterioration of 480 basis points (bps) from the prior-year quarter. This was primarily due to increase in the expense ratio, rise in the current accident year loss ratio before catastrophes, largely on higher workers' compensation and general liability losses, increase in policyholder dividends due to favorable workers’ compensation loss experience in the recent accident years, partly offset by an improvement in the commercial auto loss ratio.

Personal Lines

Personal Lines total revenues were $1 billion, down 2.6% year over year.

This segment generated net loss and core loss of $74 million and $46 million, respectively. Both the metrics were wider than the respective year-ago loss of $15 million and $14 million. This downside stemmed from higher current accident year catastrophe loss.

Current accident year Personal Lines catastrophe loss totaled $200 million, stemming from the California wildfires.

The Personal Lines underlying combined ratio improved of 870 bps from fourth-quarter 2016, owing to improvement in current accident year loss ratio before catastrophes.

Group Benefits

Group Benefits’ total revenues of $911 million increased 43% year over year.

This segment generated net income and core earnings of $109 million and $67 million, up 73% and 14%, respectively from fourth-quarter 2016.

The total loss ratio of 76.1% improved 60 bps over the year-earlier quarter. This was driven by improvement in the group disability loss ratio.

Mutual Funds

Mutual Funds operating revenues grew 14.1% year over year to $210 million.

Hartford Financial reported Mutual Funds net income and core earnings of $33 million and $37 million, rising 94% and 118%, respectively year over year, driven by state tax benefit and higher fee income.

Average AUM increased 22% to $99.1 billion.

Corporate

The Corporate segment recorded net loss of $4.1 billion against with net income of $13 million in a prior-year quarter. Core loss of $51 million compared favorably with the core loss of $57 million from the comparable quarter, last year.

Financial Update

Book value per share as of Dec 31, 2017 dropped 22% from Dec 31, 2016 to $35.29.

Core earnings’ return on equity rose 150 bps to 6.7%.

Share Repurchases

In 2017, Hartford Financial repurchased 1 billion common shares and paid $341 million in dividends, returning $1.4 billion to shareholders.

Business Update

On Dec 4, 2017, Hartford Financial announced a definitive agreement to sell Talcott Resolution, its life and annuity run-off business, which it expects to close by Jun 30, 2018.

Guidance

Commercial Lines combined ratio is expected in the range of 93.0-95.5%. Personal Lines combined ratio is anticipated in the 96-98% band. P&C current accident year catastrophe loss ratio is estimated at about 3.6%. P&C net investment income is projected between $1,125 million and $1,175 million. Group Benefits net income is predicted between $275 million and $295 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted downward by 6.2 % due to these changes.

Hartford Financial Services Group, Inc. (The) Price and Consensus

 

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

VGM Scores

At this time, HIG has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Charting a somewhat similar path, 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 aggregte VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise HIG has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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