We have upgraded our recommendation on
Hartford Financial Services GroupInc.
(
HIG
) to Neutral from Underperform prompted by its initiatives to
increase o perational and financial efficiency. Nevertheless, we
are a bit concerned about the lower 20 11 earning guidance provided
by the company on December 8, 2011.
Hartford has been selling off its non-core businesses in order
to focus on its core businesses, thereby improving the operating
performance in the long run. During the past three months, Hartford
announced an agreement to sell its subsidiary Hartford Life Private
Placement to Philadelphia Financial Group Inc. and completed the
sale of Federal Trust Corporation, to
CenterState Banks, Inc.
(
CSFL
) and Trumbull Services LLC to
ExlService Holdings, Inc.
(
EXLS
).
Additionally, Harford realizes the need to improve its financial
efficiencies and risk management functions. For this, the company
signed a multi-year agreement with
Accenture Plc.
(
ACN
), whereby the latter will provide management and technology
consultancy services along with finance and accounting business
process outsourcing services.
On the flip side, management expects to report a decline in both
AARP direct and agency businesses in 2011 earnings release, which
will contribute to the expected decline in the year's written
premium. Management also expects the statutory surplus in Life
operations to continue declining through 2012. This is also
reflected in management's expectation of a single-digit growth rate
in 2012.
Additionally, the net investment income of Hartford varies
significantly with changes in market conditions, thereby largely
impacting the company's net income. With the ongoing weak market
conditions, the poor investment results are expected to continue in
2012 and beyond. Moreover, low interest rates since the mid-2010
coupled with the poor economic scenario have prompted management to
declare that the achievement of the previously announced ROE target
of 11% will be delayed beyond the earlier goal of 20 12-end.
The Zacks Consensus Estimate for Hartford's fourth-quarter 2011
earnings is currently 61 cents per share, down about 42% from the
year-ago quarter. Moreover, for 2011, the Zacks Consensus Estimate
stands at $1.86 per share, down about 44% from 2010.
Currently, Hartford carries a Zacks #3 Rank, implying a
short-term 'Hold' rating.
ACCENTURE PLC (
ACN
): Free Stock Analysis Report
EXLSERVICE HLDG (
EXLS
): Free Stock Analysis Report
HARTFORD FIN SV (
HIG
): Free Stock Analysis Report
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