Why Hartford Financial Will Likely Report An Earnings Miss

Hartford Financial (NYSE: HIG) will release its Q4 and full-year 2019 results on Monday, February 3. Trefis details expectations from the insurance giant in an interactive dashboard, parts of which we highlight below. We believe that Hartford Financial’s FY 2019 earnings and revenues will miss consensus estimates. We expect revenues to increase year-on-year to $20.3 billion primarily due to growth in Commercial Property & Casualty and Group Life Insurance segments but will miss the consensus estimate of $20.6 billion. Also, the EPS figure would improve to $5.44 due to a combination of higher revenues and a steady reduction in share count. However, it would still be lower than the consensus earnings estimate of $5.55. Further, we believe that weaker-than-expected earnings and revenues for FY 2019 will likely result in a slight reduction in Hartford’s stock price once it announces earnings. Our forecast indicates that Hartford Financial’s valuation is $64 a share, which is roughly 10% above its current price.

Trefis shines the spotlight on key assumptions and data for Hartford Financial, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Hartford Financial’s FY19 earnings in our interactive dashboard.

(1) Hartford Financial’s revenues would have increased by 7.2% from $19 billion in 2018 to $20.3 billion in 2019; slightly below the consensus estimates

• Trefis estimates Hartford Financial’s 2019 revenues to be $20.3 billion, slightly below the consensus estimate of $20.6 billion.
• Hartford Financial’s Property & Casualty segment, which consists of 3 sub-divisions – Commercial Property & Casualty, Consumer Property & Casualty, and Investment Income – is expected to contribute $12.4 billion to Hartford Financial’s 2019 revenues, making up 61% of the company’s $20.3 billion in revenues for 2019.
• Although it is the company’s highest-contributing segment, its revenue share has decreased from 72% in 2016 to 62% in 2018 due to strong growth in the Group Life Insurance business.
• The Group Life Insurance segment has added $2.6 billion, which is 96% of the $2.7 billion in total revenues the company added over 2016-2018.
• The insurance giant would likely add around $2.47 billion over 2019-2020, which would be driven by about $1.23 billion from Property & Casualty, $940 million from Group Life Insurance and $290 million from Mutual Funds & Corporate division.
• This would make Group Life Insurance (which offers group life, disability, group retiree health, voluntary insurance policies and includes segment’s investment income) the fastest-growing segment of the company, with its revenue share expected to jump from around 26% over the last three years to over 32% by 2019.
• Notably, we expect Hartford Financial to add about $1.1 billion in incremental revenues by 2020, enabling the net revenue figure to cross $21.4 billion.

Our interactive dashboard analysis, ‘Hartford Financial Revenues – How Does Hartford Financial Make Money?’, provides an interactive, in-depth view of the company’s revenues along with our forecasts and a comparison of trends with peers AIG, Prudential Financial and MetLife.

(2) EPS is expected to increase by 8.2% from $5.03 in 2018 to $5.44 in 2019, although it would narrowly miss the consensus estimates

• We expect Hartford Financial’s 2019 earnings per share (EPS) to be $5.44 per Trefis analysis, 2% lower than the consensus estimate of $5.55 per share.
• An increase in Revenues as detailed above coupled with a steady reduction in share count will drive EPS growth despite an expected increase in Total Expenses by 7.3%.
• As we forecast Hartford Financial’s Revenues to grow at a slower rate than Expenses in 2019 (7.2% vs. 7.3%), this will result in a reduction in HIG’s Net Income Margin figure from 9.5% in 2018 to 9.4% in 2019.
• For 2020, we believe that slightly higher growth in expenses, as compared to revenues, would shrink the net income margin figure to 9.1%.

(3) Stock price estimate ~10% more than the market price

• A trailing P/E multiple of 11.8x looks appropriate for Hartford Financial’s stock, as opposed to the current implied P/E multiple of 10.6x.
• Trefis’ forecast for Hartford Financial’s 2019 earnings is slightly lower than the market estimates, although P/E multiple is higher. This works out to a fair value of $64 for Hartford Financial’s stock as opposed to the current market price of around $59.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams