Hartford Financial Stock to beat second quarter earnings consensus driven by net investment income

Hartford Financial (NYSE: HIG) is expected to release its fiscal 2021 second quarter results on Thursday, July 29. We expect Hartford Financial

RAISED
to report mixed results, with revenues exceeding consensus estimates and profits missing the mark. The insurance giant missed revenue and profit expectations in the last quarter, despite growing 7% year-on-year revenue. Growth was mainly driven by an improvement in its net investment income. However, its net premium and fee income declined slightly during the quarter. In addition, the company’s profitability figures suffered in the first quarter due to higher operating expenses. We expect some improvement in profitability in the second quarter, however, revenues should follow the same trend.

Our forecast indicates that Hartford Financial’s valuation is around $ 75 per share, or 22% above the current market price of around $ 62. Check out our interactive dashboard analysis at Hartford Financial pre-earnings: what to expect in the second quarter? for more details.

(1) Revenue expected just ahead of consensus estimates in Q2

Trefis estimates Hartford Financial’s second-quarter 2021 revenue to be around $ 5.25 billion, slightly above the consensus estimate of $ 5.21 billion. Hartford Financial’s revenue of $ 20.5 billion for full year 2020 was slightly lower than the 2019 figure. This could be attributed to two main reasons: First, weak premium growth (2% year-on-year). annual); second, a 5% year-over-year decline in net investment income in 2020 due to headwinds in interest rates. That said, net investment income saw some recovery in the first quarter, although premiums and commission income declined slightly compared to the same period last year. We expect the same trend to continue in the second quarter of fiscal 2021.

Going forward, we expect the return on investment to remain below pre-Covid-19 levels for some time to come. But growth in invested assets, coupled with some improvement in investment returns, is likely to push net investment income up. Additionally, bonuses and commissions are likely to improve as the economy recovers, although it is unlikely to generate significant growth during the year. Overall, HIG revenue is expected to remain around $ 21 billion in fiscal 2021. Our dashboard on Hartford Financial revenues offers more details on the business segments.

2) BPA risks missing consensus estimates

Hartford Financial’s adjusted earnings per share for the second quarter of 2021 is expected to be $ 1.20 per Trefis analysis, nearly 10% below the consensus estimate of $ 1.33. The company’s net income fell 17% year-on-year to $ 1.7 billion in 2020, mainly due to increased benefits, losses and claims settlement expenses. In addition, the same trend also continued in the first quarter of 2021, with net profit down 9% year-on-year. That said, we expect operating expenses to decline favorably in the second quarter.

The company’s net profit margin is expected to decline slightly in 2021. This will likely translate into EPS of $ 4.77, just below the 2020 figure.

(3) Stock price estimate 22% higher than the current market price

Based on our Hartford Financial assessment, with an EPS estimate of around $ 4.77 and a P / E multiple just below 16x in fiscal 2021, that translates to a price of $ 75, that’s 22% above the current market price of around $ 62.

Note: P / E multiples are based on the stock price at the end of the year and reported (or expected) adjusted earnings for the entire year

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