Insurance Stocks

Hartford Financial Services Group Inc Valuation – August 2016 $HIG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Hartford Financial Services Group Inc (HIG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Hartford Financial Services Group, Inc. is a holding company. The Company operates through six segments: Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds and Talcott Resolution. Commercial Lines segment provides workers’ compensation, property, automobile, liability, umbrella, marine and livestock coverages to businesses, throughout the United States. Personal Lines segment provides automobile, homeowners and personal umbrella coverages to individuals across the United States. Property & Casualty Other Operations segment includes certain property and casualty operations, which are managed by the Company. Group Benefits segment provides group life, accident and disability coverage, group retiree health and voluntary benefits to members of employer groups, associations and affinity groups. Mutual Funds segment provides investment management, administration, distribution and related services to investors through investment products.

HIG Chart

HIG data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HIG – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,849,439,619 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -427.99% Fail
5. Moderate PEmg Ratio PEmg < 20 16.47 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.87 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

HIG value chart August 2016

EPSmg $2.47
MG Growth Estimate 15.00%
MG Value $95.04
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $35.80
MG Value based on 0% Growth $20.98
Market Implied Growth Rate 3.98%
Current Price $40.65
% of Intrinsic Value 42.77%

Hartford Financial Services Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.21 in 2012 to an estimated $2.47 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Hartford Financial Services Group Inc revealed the company was trading below its Graham Number of $57.77. The company pays a dividend of $0.84 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.47, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Hartford Financial Services Group Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

HIG charts August 2016

Graham Number $57.77
PEmg 16.47
PB Ratio 0.87
Dividend Yield 2.07%
TTM Dividend $0.84
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $4,634,000,000
Total Assets $227,616,000,000
Intangible Assets $498,000,000
Total Liabilities $209,057,000,000
Shares Outstanding (Diluted Average) 398,600,000

Earnings Per Share History

Next Fiscal Year Estimate $3.10
Dec2015 $3.96
Dec2014 $1.73
Dec2013 $0.34
Dec2012 -$0.18
Dec2011 $1.30
Dec2010 $2.49
Dec2009 -$2.93
Dec2008 -$8.99
Dec2007 $9.24
Dec2006 $8.69
Dec2005 $7.44
Dec2004 $7.12
Dec2003 -$0.33
Dec2002 $3.97
Dec2001 $2.10
Dec2000 $4.34
Dec1999 $3.79
Dec1998 $4.30
Dec1997 $5.58
Dec1996 -$0.42

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.47
Dec2015 $1.91
Dec2014 $0.97
Dec2013 $0.46
Dec2012 -$0.21
Dec2011 -$0.07
Dec2010 $0.06
Dec2009 $0.13
Dec2008 $2.67
Dec2007 $7.81
Dec2006 $6.53
Dec2005 $4.98
Dec2004 $3.65
Dec2003 $2.20
Dec2002 $3.54
Dec2001 $3.56
Dec2000 $4.03

Recommended Reading:

Other ModernGraham posts about the company

Hartford Financial Services Analysis – 2015 Annual Update $HIG
15 Companies in the Spotlight This Week – 5/31/14
Hartford Financial Services 2014 Annual Valuation $HIG

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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