[Updated 12/16/2020] Hartford Financial Update
We believe Hartford Financial (NYSE: HIG) stock has a potential upside of 28% in 1 to 1.5 years once the negative GDP scenario improves and investment returns recover somewhat. HIG is currently trading at $ 46 and is 22% ahead of its pre-Covid February high. Additionally, HIG stock is up 48% from March 2020 lows, after the multibillion-dollar stimulus package announced by the U.S. government, which largely helped the stock market recover. The stock is lagging behind broader markets (the S&P 500 is up about 65% since the March low) as investors are cautious about the impact of falling investment returns on its net investment income.
Hartford Financial recently released its third quarter results, beating consensus earnings estimates. It reported total revenues of $ 5.17 billion, down 3% from a year ago, due to lower net realized capital gains and a slight drop in total premiums . The company is one of the largest providers of P&C and life insurance products in the United States, which also contributes most of HIG’s revenue. Its nine-month consolidated earned premium was up 4% year-over-year due to growth in the P&C business. That said, insurance premiums are unlikely to see a significant increase in the near term, as businesses and individuals have suffered losses from the Covid-19 pandemic, shifting their focus from survivability to long-term to short-term survivability. In addition, return on investments has suffered in the current year due to the economic downturn and there is unlikely to be an immediate recovery – nine-month consolidated net investment income is down 11 months. % year-on-year. However, as the economy normalizes, net investment income and insurance premiums are expected to rise, which will provide a much needed boost to Hartford Financial’s income.
Despite the rally in HIG stocks since the end of March, we believe the stock has some room to grow over the next 1 to 1.5 years, provided there is no sudden spike in cases of Covid-19 leading to new lockdown restrictions. Our conclusion is based on our detailed analysis of Hartford Financial’s stock market performance during the current crisis versus that during the 2008 recession in an interactive dashboard analysis.
[Updated 10/26/2020] Hartford Financial stock has 40% growth potential
We believe Hartford Financial (NYSE: HIG) stock has upside potential of 40% in the near term. HIG is currently trading near $ 40 and has lost 32% in value since the start of the year. It was trading at a pre-Covid high of $ 57 in February and is currently 30% below that level. In addition, HIG stock is up 34% from the low of $ 30 seen in March 2020, after the multibillion-dollar stimulus package announced by the U.S. government helped stock prices recover in a slump. to some extent. That said, the stock is lagging slightly behind broader markets (S&P 500 is up 55%) as investors are overly cautious about the impact of falling consumer demand on markets. insurance premiums, which is a significant portion of income. In addition, investment income from insurance premiums – which are very important to the profitability of any insurance company – suffered in the second quarter due to lower yields due to the negative GDP scenario. Despite some improvement in the HIG stock since the end of March, we believe the stock still has room to grow in the near future. Our conclusion is based on our detailed analysis of Hartford Financial’s stock market performance during the current crisis versus that during the 2008 recession in an interactive dashboard analysis.
Coronavirus crisis 2020
- 12/12/2019: Coronavirus cases first reported in China
- 01/31/2020: WHO declares global health emergency.
- 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
- 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
- From 03/24/2020: S&P 500 recovers 55% from lows on March 23, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.
On the other hand, here is how HIG and the market at large behaved during the crisis of 2007/2008.
Timeline of the 2007-08 crisis
- 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
- 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: Approximate low point of the S&P 500 index
- 1/1/2010: Initial recovery to pre-accelerated decline levels (around 1/9/2008)
Hartford Financial’s Performance Against the S&P 500 During the 2007-08 Financial Crisis
HIG stock fell from levels of around $ 70 in October 2007 (the pre-crisis peak) to around $ 5 in March 2009 (when markets bottomed out), implying that the stock has lost up to 93% of its value from its approximate pre-crisis level. peak of crisis. This marked a much higher drop than the S&P overall, which fell about 51%.
However, HIG recovered sharply from the 2008 crisis to reach around $ 19 in early 2010 – increasing 285% between March 2009 and January 2010. In comparison, the S&P rebounded by around 48% over the same period.
Hartford Financial’s fundamentals in recent years look strong
Hartford Financial’s revenues grew 29%, from $ 16 billion in 2015 to $ 20.7 billion in 2019, primarily driven by growth in the P&C segment. In addition, the company’s net income grew from $ 1.7 billion to $ 2.1 billion, resulting in strong EPS growth from $ 4.05 in 2015 to $ 5.72 in 2019. Additionally, the company’s second quarter 2020 revenue was slightly lower than the previous year, however, the EPS figure for the quarter fell from $ 1.02 in Q2 2019 to $ 1.29 in Q2. 2020.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
- End of March 2020: social distancing measures + confinements
- April 2020: Fed stimulus suppresses short-term survival anxiety
- May-June 2020: Resumption of demand, with the gradual lifting of confinements – no more panic despite a steady increase in the number of cases
- July-October 2020: mediocre Q3 results and mixed expectations for Q4, but persistence improvement in demand, a decrease in the number of new cases, and advances in vaccine development boost market sentiment
Keeping the 2009-10 trajectory in mind and due to the improvement in Hartford Financial’s stock since late March, this suggests a potential rally to around $ 57 (40% rise) once conditions economies will begin to show signs of improvement. This marks a full recovery to the $ 57 level Hartford Financial stock was at before the coronavirus outbreak gained momentum globally.
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