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Hanover Insurance (THG) Up 8.9% YTD: Will the Rally Continue?

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Shares of The Hanover Insurance Group THG have gained 8.9% year to date, outperforming the industry’s increase of 1.3%. The Finance sector has declined 15.1% in the said time frame and the Zacks S&P 500 composite declined 18.6%. With a market capitalization of $5.1 billion, the average volume of shares traded in the last three months was 0.2 million.

Growth in the most profitable Core Commercial and Specialty segments, stable retention, better pricing and strong market presence and solid capital position continue to drive this Zacks Rank #3 (Hold) insurer.

Hanover Insurance Group has a stellar history of delivering positive surprises in the last 14 reported quarters.

Return on equity in the trailing 12 months was 2.3%. THG estimates an operating return on equity of 14% in the long run, banking on improved rates and cost management.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Can THG Retain the Momentum?

The Zacks Consensus Estimate for THG’s 2022 earnings is pegged at $10.55, indicating a 20.9% increase from the year-ago reported figure on 6.8% higher revenues of $5.5 billion. The consensus estimate for 2023 earnings is pegged at $11.90, indicating a 12.8% increase from the year-ago reported figure on 4.4% higher revenues of $5.8 billion.

The long-term earnings growth rate is currently pegged at 16.1%, better than the industry average of 10.5%. THG estimates the bottom line to grow between 12% and 13% over the long term. It has an impressive Growth Score of A.

Hanover Insurance has evolved into a balanced, small/middle market-focused commercial and personal lines carrier. The company looks to be the premier P&C franchise in the independent agency channel.

Hanover Insurance expects to deliver mid-single-digit growth in target returns in Personal Lines in 2022 as it intends to increase prices in both home and auto. At Auto, THG expects a near double-digit rate increase for the remainder of 2022.

Rate increases and the successful launch of TAP sales should drive Commercial Lines revenues. Hanover Insurance believes that its market-leading capabilities, operating model and portfolio performance should allow it to benefit in the high-margin $105 billion small commercial market segment.

The Commercial Lines loss ratio is expected to improve in 2022, given the rate increases implemented in 2021. The consolidated expense ratio is projected to improve 20 basis points in 2022 to 31.1%.

Focus on pricing segmentation and mix management and emphasis on growth in target states, product lines and industry classes in the middle market bode well for THG.

THG continues to invest in technology to upgrade the front-end capabilities.

All these together should help THG deliver the higher end of mid-single-digit net written premium growth in 2022 and a five-year CAGR of more than 7% to $7 billion.

THG has a VGM Score of A.

Solid Dividend History

The company has been hiking dividends for the last 16 years, in addition to paying special dividends. THG’s dividend witnessed an 11-year CAGR of 10.5%. Its yield of 2.1% is better than the industry average of 0.4%.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are RLI Corp. RLI, W.R. Berkley Corporation WRB and American Financial Group, Inc. AFG. While RLI currently sports a Zacks Rank #1 (Strong Buy), American Financial and W.R. Berkley carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RLI has a solid track record of beating earnings estimates in each of the last seven quarters. In the past year, RLI stock has increased 10.7%.

The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley's stock has increased 29.7%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 6.3% and 6.2% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has rallied 8.2%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past seven days.


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