Hartford Financial (NYSE: HIG) is expected to release its results for the third quarter of fiscal 2021 on Friday, October 29. We expect Hartford Financial to exceed earnings and revenue expectations. The property and casualty insurance giant outperformed consensus estimates in the last quarter, with revenue increasing 10% year-on-year to $ 5.6 billion. This was explained by a 71% year-over-year jump in net investment income coupled with higher net realized capital gains. Premiums and commissions earned increased 7% year-on-year, primarily driven by growth in the commercial property and casualty insurance segment. Additionally, higher revenues and lower operating expenses as a percentage of revenues resulted in 93% year-on-year growth in net income for the quarter. We expect revenue to follow the same trend in the third quarter.
Our forecast indicates that Hartford Financial Assessment is $ 78 per share, or 6% above the current market price of about $ 73. Our interactive dashboard analysis on Hartford Financial earnings overview has more details.
(1) Revenue expected below consensus estimates
Hartford Financial revenues for the whole of 2020 were $ 20.5 billion – just below the period last year. This is due to slower growth in premium and commission income, combined with a 5% drop in net investment income.
- HIG generates almost 90% of total revenue from premium and fee income. The revenue stream grew at an average annual rate of 8% over 2017-2019. However, its growth rate slowed to just 2% year-on-year in 2020, due to the impact of the Covid-19 crisis. This was due to a 6% year-over-year decline in the P&C personal insurance sub-segment. The unit suffered from lower total premiums in the auto insurance category, which generates the majority of its revenue. That said, the trend changed in the first and second quarters of 2021, with personal lines seeing some recovery in premium and fee income. We also expect the same trend to continue in the third quarter.
- Although the business only generates 9% of total net investment income (NII), this is very important to its profitability. Hartford saw a 5% year-on-year decline in the NII in 2020, mainly due to the decline in investment returns during the year. Investment returns suffered from the Fed’s zero rate policy in response to the Covid-19 crisis. That said, the NII improved 37% year-on-year in the first six months of 2021, mainly due to growth in invested assets and higher income from limited partnerships and other alternative investments. We expect the same momentum to continue in the third quarter.
- Overall, we expect Hartford Financial’s revenue to reach $ 21.2 billion in fiscal 2021.
Trefis estimates Hartford Financial’s third-quarter 2021 revenue to be around $ 5.37 billion, 2% above the consensus estimate of $ 5.25 billion. We expect growth in commercial property and casualty insurance and net investment income to drive third quarter results.
Going forward, total premium and commission income should see some improvement over the next few quarters, with improving economic conditions. In addition, investable assets are expected to maintain their growth momentum in fiscal 2021. The NII is expected to continue its growth momentum during the year, driven by increased investable assets and higher income high from limited partnerships and other alternative investments. However, low investment returns will likely offset some of the positive effects. Our dashboard on Hartford Financial revenues provides more details on the company’s operating segments as well as our forecast for the next two years.
2) EPS should exceed consensus estimates
Hartford Financial Q3 2021 adjusted earnings per share (EPS) is expected to be $ 0.95 per Trefis analysis, nearly 10% above the consensus estimate of $ 0.86. The company reported adjusted net income of $ 1.72 billion in 2020, down 17% year-on-year, mainly due to a decline in total benefits, losses and expense as a percentage of revenue of 87 , 7% to 89.7% during the year. However, the expense percentage declined in the first and second quarters of 2021. This translated into a 56% year-over-year increase to $ 1.1 billion in adjusted net income for the first half of the year. year. We expect spending to increase slightly in the third quarter.
Going forward, we expect Hartford Financial’s net income margin for fiscal 2021 to hover around 2020 levels, leading to adjusted net income of $ 1.74 billion – slightly above the time of last year. This will likely result in EPS of $ 5.07.
(3) Stock price estimate 6% higher than the current market price
We arrive at Hartford Financial Assessment, using an EPS estimate of about $ 5.07 and a P / E multiple of just over 15x in fiscal 2021. This translates to a price of $ 79, or 6% above. above the current market price of about $ 73.
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.