3 Reasons to Sell HIG and 1 Stock to Buy Instead

Hartford trades at $119 and has moved in lockstep with the market. Its shares have returned 5.8% over the last six months while the S&P 500 has gained 5.2%.

Is there a buying opportunity in Hartford, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Hartford Not Exciting?

We're cautious about Hartford. Here are three reasons why HIG doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Big picture, insurers generate revenue from three key sources. The first is the core business of underwriting policies. The second source is income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services.

Over the last five years, Hartford grew its revenue at a tepid 5.3% compounded annual growth rate. This was below our standard for the insurance sector.

2. Net Premiums Earned Points to Soft Demand

While insurers generate revenue from multiple sources, investors view net premiums earned as the cornerstone - its direct link to core operations stands in sharp contrast to the unpredictability of investment returns and fees.

Hartford’s net premiums earned has grown at a 7% annualized rate over the last four years, slightly worse than the broader insurance industry.

3. Recent EPS Growth Below Our Standards

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Hartford’s EPS grew at an unimpressive 15.8% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 8.5% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

Hartford’s business quality ultimately falls short of our standards. That said, the stock currently trades at 1.9× forward P/B (or $119 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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