2023-04-19 11:39:37 ET
Summary
- Insurance stocks are making multi-week highs following the regional banking mini-crisis in March.
- Following a weak earnings preannouncement, I continue to see value in shares of HIG.
- I outline key price levels to watch on this undervalued company.
Insurance stocks got swept up in the Financial sector volatility around the domestic regional banking turmoil in March. While there may be concerns about some of the industry’s balance sheet positions, shares in some of the larger companies have rebounded, but all eyes will be on earnings that are due out in the coming weeks.
I reiterate my buy rating on HIG, but a recent bearish preliminary earnings report casts a shadow.
Insurance Stocks Moving Higher Versus The Financial Sector
According to Bank of America Global Research, The Hartford ( HIG ) is a diversified financial services/insurance company with businesses in commercial P&C, personal lines, disability lines, and mutual fund distribution. HIG has been undergoing a long-term transformation after having been weakened by the financial crisis. Having excised many of its most volatile businesses, HIG's earnings have stabilized. The acquisition of Navigators aims to expand it as a broad carrier for independent agents. HIG sells personal lines insurance co-branded with AARP.
The Connecticut-based $21.9 billion market cap Insurance industry company within the Financial sector trades at a low 12.8 trailing 12-month GAAP price-to-earnings ratio and pays a moderate 2.4% dividend yield, according to The Wall Street Journal.
The big news over recent days was the company’s earnings preannouncement that took place on Thursday, April 13. Shares plunged from above $70 to near $67 but have since rebounded. HIG’s projected Q1 core earnings were significantly below the consensus, dinged by higher catastrophic losses. In the past, the firm had earned decent partnership income while its Personal Lines business was soft. The culprit for the preliminary earnings announcement was material hits from winter storms along both the east and west coasts. Overall, I am still optimistic on the stock even after the bearish preannouncement – storms will pass, so to speak.
On valuation, analysts at BofA see earnings rising at a healthy 16% clip in 2023 before per-share profit growth moderates around 10% in the out year and 2025. The Bloomberg consensus forecast is about on par with what BofA projects. Dividends, meanwhile, are seen as rising steadily over the coming quarters while shares trade at attractive P/E levels.
With a forward P/E currently low at 8.76, a 17.6% discount to its 5-year average, I see upside for Hartford. If we assign a 10 multiple, a 10% discount to its peers, then the stock should be in the upper $80s based on 2023 earnings.
The Hartford: Earnings, Valuation, Dividend Forecasts
HIG: Single-Digit Forward P/E, Cheap Forward PEG
Seeking Alpha
Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q1 2023 earnings date of Thursday, April 27 after the closing bell with a conference call the following morning. You can listen live here . HIG’s annual shareholder meeting then takes place on Wednesday, May 17.
Corporate Event Risk Calendar
The Technical Take
HIG was drifting higher before the SVB saga in early to mid-March. Shares then sank from near $80 to under $65 last month, but a rebound has brought the stock back near $70 – right where its long-term 200-day moving average rests. Notice in the chart below that HIG rose on weaker RSI momentum from Q4 of last year through February.
Weak momentum indeed proved problematic, and the stock revisited long-term support in the low to mid-$60s. Overall, the chart is neutral, but a rally above $80 on strong RSI would help confirm a bullish break. Another strategy is buying the dip to support about 10% lower from here with a stop under the 2022 low.
HIG: Bearish RSI Divergence Portended A March-April Swoon
The Bottom Line
I reiterate my buy rating on HIG based on valuation. Strong EPS growth is still expected even in light of April’s downbeat earnings preannouncement. I acknowledge that the technical picture is less sanguine today, though.
For further details see:
The Hartford: Looking Beyond The Bearish Earnings Preannouncement