Why Hartford Earnings Should Soar This Quarter

Hartford Financial (NYSE: HIG  ) will release its quarterly report on Monday, and the insurance company's prospects have been looking increasingly favorable lately. With a big boost in its stock price and some positive economic developments, Hartford earnings are poised to post some big growth numbers when it reports.

Hartford went through a rough few years during and after the financial crisis as commitments it had made to policyholders created big losses exactly as income from its investment portfolio fell through the floor. More recently, though, things have started looking up for the insurance industry more broadly, and Hartford's big transformation to focus on more profitable business appears to be paying off for the company. Let's take an early look at what's been happening with Hartford Financial over the past quarter and what we're likely to see in its quarterly report.

Stats on Hartford Financial

Analyst EPS Estimate

$0.71

Change From Year-Ago EPS

209%

Revenue Estimate

$5.46 billion

Change From Year-Ago Revenue

19.3%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How long can Hartford earnings climb so fast?
Analysts have actually had mixed views on Hartford earnings recently, having cut their June-quarter estimates by $0.02 per share. But they've raised full-year 2013 and 2014 projections by $0.07 per share each, and the stock has responded in line with the longer-term view, rising 17% since late April.

Hartford has been going through a large restructuring of its business, having sold off business lines such as its individual life-insurance unit and its retirement plan business. Although the company posted a loss in its first-quarter report, a one-time charge related to expansion in its annuity-hedging program in Japan was to blame for the loss as Hartford moves more toward becoming a pure property and casualty insurance company. The company continued divesting non-core assets during the quarter, selling its U.K. variable annuity business to a subsidiary of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) last month for $285 million. Berkshire won in a competitive bidding process, seeing value in taking on the risk that Hartford is anxious to rid itself of going forward.

With almost three-quarters of its revenue now coming from its property and casualty business, Hartford will be increasingly sensitive to catastrophic losses when they occur. With this quarter's loss activity appearing to be relatively muted compared to past periods, Hartford's earnings growth is consistent with what we've seen from other companies. Travelers (NYSE: TRV  ) , for instance, blew out estimates when it reported earnings earlier this month, with an 85% jump in profits coming in part from more favorable loss experience.

One concern, though, comes from the bond market. Travelers cited massive unrealized gains from its bond portfolio that hurt its book value, and Hartford could see similar pressure this quarter as well. Higher rates should help Hartford by providing more investment income in the long run, but the short-term impact could surprise investors who aren't prepared for it.

In the Hartford earnings report, look to see how much more progress the company has made toward fully embracing the property and casualty business. For now, that seems like a lucrative strategy, but in the long run, Hartford's prospects will depend increasingly on the state of the P&C market and whether insurers can continue to keep premiums high even if loss experience moderates from some of the big disasters we've seen over the past couple of years.

Solid companies selling at depressed prices have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company in the insurance industry, read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.


 Click here to add Hartford Financial to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 27, 2013, at 4:10 PM, rlbeard6734 wrote:

    There seems to be an error how would massive bond gains reduce book value, surely with increasing interest rates they had massive bond losses and that would hurt book value.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2558329, ~/Articles/ArticleHandler.aspx, 8/22/2014 3:15:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement