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Insurance Stocks

Hartford Financial Services Group Inc Valuation – February 2019 $HIG

Company Profile (excerpt from Reuters): The Hartford Financial Services Group, Inc., incorporated on December 9, 1985, is a holding company for insurance and financial services subsidiaries. The Company, through its subsidiaries, provides property and casualty insurance, group life and disability products, and mutual funds and exchange-traded products to individual and business customers in the United States. The Company’s segments include Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds, and Corporate. The Company administers life insurance and annuity products previously sold.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HIG – February 2019

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 $17,456,035,313 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 -72.65% Fail
5. Moderate PEmg Ratio PEmg < 20 28.38 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.35 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.71
MG Growth Estimate -1.62%
MG Value $9.01
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $24.86
MG Value based on 0% Growth $14.57
Market Implied Growth Rate 9.94%
Current Price $48.66
% of Intrinsic Value 540.08%

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, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $1.92 in 2015 to an estimated $1.71 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.94% 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 below 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 $60.98. The company pays a dividend of $1.1 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 28.38, which was below the industry average of 32.96, 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

Graham Number $60.98
PEmg 28.38
PB Ratio 1.35
Dividend Yield 2.26%
TTM Dividend $1.10
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $4,265,000,000
Total Assets $62,307,000,000
Intangible Assets $1,947,000,000
Total Liabilities $49,206,000,000
Shares Outstanding (Diluted Average) 364,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.65
Dec2018 $4.95
Dec2017 -$8.61
Dec2016 $2.27
Dec2015 $3.96
Dec2014 $1.73
Dec2013 $0.36
Dec2012 -$0.18
Dec2011 $1.40
Dec2010 $2.40
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.71
Dec2018 $0.45
Dec2017 -$1.22
Dec2016 $2.19
Dec2015 $1.92
Dec2014 $0.98
Dec2013 $0.48
Dec2012 -$0.20
Dec2011 -$0.06
Dec2010 $0.03
Dec2009 $0.13
Dec2008 $2.67
Dec2007 $7.81
Dec2006 $6.53
Dec2005 $4.98
Dec2004 $3.65
Dec2003 $2.20

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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