Hartford Financial's Growth Potential Hurt By Weak Segments

The Hartford Financial Services Group, Inc (NYSE:HIG) is one of the major multi-line insurance and investment companies in the country. The shares of Hartford Financial have rallied nearly 39%, outperforming the industry’s gain of 27% in last one year. This reflects the company’s strong foothold in the property and casualty market.

Interestingly, the company’s well-executed strategic dispositions of its legacy run-off businesses have improved its risk profile. Also, divesture of its non-core businesses along with strategic acquisitions and alliances have helped it to concentrate on its U.S. operations.Hartford Financial also displays intelligent capital management by regularly returning excess capital to shareholders via share buybacks and dividend payments.

On the back of recent interest rate hikes, net investment income of the company started improving. In fact, it further increased 1% to $1.4 billion in first-half 2017 owing to higher investment income on Limited Partnerships.

Additionally, Hartford Financial’s second-quarter 2017 earnings not only surpassed the Zacks Consensus Estimate but also grew year over years driven by a reduction in the weighted average diluted common shares outstanding.

Nevertheless, being a property and casualty insurer, the company also remains exposed to numerous catastrophic events, which often results in earnings volatility.

Its Personal lines segment has also incurred considerable amount of auto liability loss. Continuing the previous trend, the segment’s revenue declined 4% year over year in the first half of 2017. Also the Talcott Resolution segment has been a drag for quite some time. In the first half of 2017, the segment’s operating revenues also decreased 1.3% year over year.

Consequently, this Zacks Rank #3 (Hold) company’s valuation looks expensive at the current level. Looking at the company’s trailing twelve months’ price-to-earnings ratio, investors may not want to pay any further premium. Currently, it has a one-year P/E ratio of 13.3, which is significantly higher than the industry average of 11.8.

Stocks to Consider

Better-ranked stocks from the insurance industry include First American Corporation (NYSE:FAF) , CNO Financial Group, Inc. (NYSE:CNO) and Argo Group International Holdings, Ltd. (NASDAQ:AGII) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First American Corporation that provides financial services delivered positive earnings surprises in all the last four quarters with an average beat of 12.64%.

CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company pulled off positive earnings surprises in three of the last four quarters with an average beat of 6.69%.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty market worldwide. The company came up with positive earnings surprises in all the last four quarters with an average beat of 26.51%.

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