A month has gone by since the last earnings report for The Hartford (HIG). Shares have added about 3.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is The Hartford due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Hartford Financial's Q1 Earnings Beat, Decline Y/Y
Hartford Financial reported first-quarter 2020 adjusted operating earnings of $1.34 per share, beating the Zacks Consensus Estimate by 0.8% on the back of improved revenues. However, the bottom line fell 3.6% year over year due to a decline in income at Talcott Resolution, reduced net investment income, higher insurance operating costs and other expenses along with short-term disability and paid family leave reserves related to the coronavirus.
Total operating revenues of $5.2 billion were up 8.6% year over year on the back of solid segmental contributions with a major uptick in the Commercial Lines segment. Moreover, the top line surpassed the Zacks Consensus Estimate by 56.2%.
Property & Casualty (P&C)
During the quarter under review, the segment’s total revenues of $2.4 billion were up 11.4% year over year.
Net income of $121 million plunged 67% year over year due to change from net realized capital gains in 2019 to net realized capital losses in 2020 and an unfavourable PYD. Core earnings of $262 million slid 4% from the prior-year level on weak underwriting gain, partly offset by lower CAY CATs and higher net investment income.
The segment’s underlying combined ratio was 94.9%, expanding 220 basis points (bps) in the quarter under review.
Total revenues were $820 million, down 7.7% year over year.
Net income of $98 million inched up 2% year over year owing to solid underwriting gain.
Core earnings of $117 million surged 43% from the year-ago quarter, courtesy of a stronger underwriting gain and increased net investment income. Underlying combined ratio of the segment contracted 250 bps to 86.6% in the quarter under review on the back of lower auto frequency claim and lower non-CAT property weather losses in homeowners.
P&C Other Ops
Revenues grossed $9 million, down 71% year over year.
Group Benefits’ total revenues of $1.5 billion slipped 2.4% year over year.
Net income of $104 million dropped 12% year over year, mainly due to net realized capital losses. Core earnings of $115 million in the first quarter decreased 6% year over year. This downside was due to increase in insurance operating costs and other expenses, rise in group disability loss ratio and soft net investment income.
Total loss ratio of 71.9% contracted 280 bps from the year-earlier quarter, riding on better group life loss ratio. However, the same was partly offset by COVID-19-related claims.
Hartford Funds’ operating revenues of $237 million dipped 2.1% year over year.
Hartford Funds reported net income of $36 million and core earnings of $44 million, up 20% and 57% year over year, respectively, primarily on higher investment management fee revenues and decrease in contingent consideration payable in relation to the 2016 Lattice acquisition.
Average AUM of $120 billion was up 7% from the year-ago figure.
Operating revenues were $(15) million against the year-ago quarter's $84 million.
The segment’s core losses of $64 million were wider than the $15-million loss incurred in the prior-year quarter. This was mainly due to lower net investment income and earnings decline in retained equity interest at Talcott Resolution.
The segment’s net loss of $91 million came in against no net income or comparative loss in the year-ago quarter. This was mainly due to a change from net realized capital gains in 2019 to net realised capital losses in 2020, reduction in net investment income and a change from earnings in 2019 to loss in 2020 on its retained equity interest in Talcott Resolution.
Share Repurchase and Dividend Update
In the quarter under review, the company bought back shares worth $150 million and paid out $108 million in common dividends.
Book value per share as of Mar 31, 2020 was down 6% to $41.42 from the level as of Dec 31, 2019.
Core earnings’ return on equity expanded 180 bps to 13.3%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -17.54% due to these changes.
At this time, The Hartford has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise The Hartford has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
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