Hartford Financial Stock Will Post Strong Third Quarter Results?

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Hartford Financial (NYSE: HIG) is scheduled to release its fiscal third quarter 2021 results on Friday, October 29. We expect Hartford Financial to exceed earnings and revenue expectations. The property and casualty insurance giant (P&C) beat consensus estimates last quarter, with revenue up 10% year-on-year to $5.6 billion. This was driven 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-over-year, primarily due to growth in the commercial P&C segment. Additionally, higher revenues and lower operating expenses as a % of revenue led to 93% year-over-year growth in net sales for the quarter. We expect sales to follow the same trend in the third quarter.

Our forecast indicates that Hartford Financial Rating is $78 per share, or 6% above the current market price of around $73. Our interactive dashboard analysis on Hartford Financial Earnings Snapshot has more details.

(1) Revenues are expected to exceed consensus estimates

Hartford Financial earnings for the year 2020 were $20.5 billion – just below the prior year period. This was due to slower growth in premium and commission income, combined with a 5% decline in net investment income.

  • HIG generates nearly 90% of total revenue from premium and fee income. The revenue stream grew at an average annual rate of 8% over the period 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 driven by a 6% year-on-year decline in the personal P&C insurance sub-segment. The unit suffered due to 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 showing some recovery in premium and commission income. We expect the same trend to continue in the third quarter as well.
  • Although the company generates only 9% of total revenue from net investment income, this is very important for its profitability. Hartford saw a 5% year-over-year decline in the NII in 2020, primarily due to falling investment returns over the year. Investment returns suffered from the Fed’s zero interest rate policy in response to the Covid-19 crisis. That said, the NII improved by 37% year-over-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 approximately $5.37 billion, 2% above the consensus estimate of $5.25 billion. We expect growth in commercial P&C insurance and net investment income to drive third quarter results.

Going forward, total premium and commission income should see some improvement in subsequent quarters as economic conditions improve. In addition, investable assets are expected to maintain their growth momentum in fiscal 2021. The NII is expected to continue its growth momentum in the year, driven by an increase in investable assets and an increase in corporate income. limited partnerships and other alternative investments. However, low investment returns will likely offset some of the positive effects. Our dashboard on Hartford Financial earnings offers more details on the company’s operating segments as well as our forecast for the next two years.

2) EPS expected to exceed consensus estimates

Hartford Financial’s adjusted earnings per share for the third quarter of 2021 are 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, primarily due to a decline in total benefits, losses and expenses as a percentage of revenue of 87%. .7% to 89.7% during the year. However, the expense percentage declined during the first and second quarters of 2021. This translated into a 56% year-on-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 fiscal 2021 net profit margin to hover around 2020 levels, leading to adjusted net profit of $1.74 billion, slightly higher than the period of the last year. This will likely translate to EPS of $5.07.

(3) Estimated stock price 6% above current market price

We arrive at Hartford Financial Ratingusing an EPS estimate of around $5.07 and a P/E multiple just above 15x for fiscal year 2021. This translates to a price of $79, or 6% above the current price market price of around $73.

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

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