The insurance industry is well-poised for growth on a gradually stabilizing operating environment, Fed rate hikes and benefits of the tax overhaul. Taking these factors into consideration, it will be a prudent move to consider T he Hartford Financial Services Group, Inc. HIG stock seems a profitable stock to hold on to, given its underlying strength and good growth prospects.
The company's Zacks Consensus Estimate for current-year earnings has been revised 5.7% upward over the past 60 days, indicating analysts' optimism about its earnings growth potential.
Shares of this Zacks Rank #3 (Hold) stock have gained 2.5% in the past year against the industry
's decline of 4.1%.
Here are a few other factors that make the stock a good investment option.
Top Line Regaining Growth Streak: We are encouraged by the company's top line resuming its growth momentum since 2016. Prior to this, the metric witnessed a weakness for many years. Going forward, we expect positive trends in revenues as the company is experiencing pricing trends in commercial lines and higher rates in property as well as liability lines.
Strategic Initiatives: We view a number of favorable strategic initiatives, likely to improve the company's risk profile from a number of well-executed tactical dispositions of its legacy run-off businesses.
Some of these deals comprise the sell-off of its U.K. property & casualty run-off subsidiaries and the reinsurance deal with National Indemnity Company (NICO), a unit of Berkshire Hathaway Inc.
Earlier this year, the company acquired Aetna Inc's U.S. group life and disability business to deepen and enhance its Group Benefits distribution capabilities as well as develop its technology platform. Last month, it completed the divestiture of its Talcott Resolution unit. This move would further help the company focus on the growing market-leading core operations like Property and Casualty, Group Benefits and Mutual Funds businesses.
Improving Interest Rate: Hartford Financial's net investment income is gradually increasing after having suffered on account of low interest rates from the past many years. Moving ahead, we expect investment results to improve on the back of an expected interest rate hike by the Fed. This in turn is expected to favor the company's investment income in the coming quarters.
Effective Capital Utilization: Hartford Financial's capital appreciations, repayment of government funds and measures to de-risk its balance sheet have cemented its financial strength. It also has an intelligent capital management strategy, featuring share buybacks and dividend hikes. The company's payout raise has witnessed a five-year CAGR of 20% and currently yields 1.9%, better than the industry average of 0.8%.
Declining Debt Level: Hartford Financial has also been successfully reducing its debt burden over the past several years. In the last four years (2012-2016), the company's long-term leverage decreased by 33%. Although in 2017, the debt ratio had slightly inched up by 1.8%, the same declined 1.3% at first-quarter 2018 end.
Hartford Financial's efforts to improve its risk profile are likely to be effective going forward. The company is on track to lower its outstanding debt by about $320 million by the end of the second quarter and thus lower the average coupon rate and total annual fixed charges. A fall in the debt level will reduce the company's interest expense by about $2 million before tax in the second quarter and then decline by an additional $8 million before tax per quarter from the third quarter onward.
Stocks to Consider
Some better-ranked stocks in the same space are Alleghany Corp. Y , HCI Group, Inc. HCI and NMI Holdings Inc. NMIH , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Alleghany surpassed estimates in three of the trailing four quarters with an average positive surprise of 17.6%.
HCI Group beat estimates in three of the trailing four quarters with an average earnings surprise of 1.57%.
NMI Holdings exceeded estimates in three of the trailing four quarters with an average beat of 24.6%.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Hartford Financial Services Group, Inc. (HIG): Free Stock Analysis Report Alleghany Corporation (Y): Free Stock Analysis Report HCI Group, Inc. (HCI): Free Stock Analysis Report NMI Holdings Inc (NMIH): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research