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Will Rising Costs Dampen Hartford's (HIG) Q1 Earnings Growth?

The Hartford Financial Services Group, Inc. HIG is set to report its first-quarter 2023 results on Apr 27, after the closing bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for earnings of $1.68 per share for the first quarter has witnessed no upward revision but five downward movements in the past month. The consensus mark, however, is indicative of a 1.2% increase from the year-ago quarter’s reported figure while our estimate suggests a more significant jump.

The Zacks Consensus Estimate for first-quarter revenues is pegged at around $4 billion, suggesting a jump of 9.8% from the year-ago quarter’s reported figure. We expect revenues to witness an 8.4% increase from the year-ago quarter’s reading.

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Hartford Financial beat on earnings in all the trailing four quarters, the average being 20.9%. This is depicted in the graph below.

The Hartford Financial Services Group, Inc. Price and EPS Surprise

The Hartford Financial Services Group, Inc. Price and EPS Surprise
The Hartford Financial Services Group, Inc. Price and EPS Surprise

The Hartford Financial Services Group, Inc. price-eps-surprise | The Hartford Financial Services Group, Inc. Quote

Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at HIG’s previous-quarter performance first.

Q4 Earnings Rewind

In the last reported quarter, the multi-line insurance and investment company’s adjusted operating earnings per share of $2.31 beat the Zacks Consensus Estimate by 24.2%. The decline in excess mortality losses within group life, coupled with growing P&C earned premium and Group Benefits fully-insured ongoing premium, contributed to the upside.

Increased net investment income and an improved group disability loss ratio also acted as tailwinds for the company. However, the upside was partly offset by elevated catastrophe losses stemming from the Winter Storm Elliott and an elevated expense level.

Now let’s see how things have shaped up before the first-quarter earnings announcement.

Q1 Factors to Note

Prudent rate increases, broader exposure, increased new business generation and strong retention rates are expected to have boosted Hartford Financial’s first-quarter performance. HIG is likely to have continued witnessing strong sales in the to-be-reported quarter.

The Zacks Consensus Estimate for net investment income is pegged at $524.6 million. Our estimate for the metric stands at $510.6 million, whereas the company’s preliminary estimate is $515 million, up from $509 million a year ago.

The company is likely to have benefited from better-written premiums in the Commercial Lines segment. Personal Lines and Group Benefits are also likely to have contributed to this upside. The Zacks Consensus Estimate for earned premiums in the first quarter indicates 8.6% year-over-year growth, whereas our estimate suggests an 8% increase.

The consensus mark for Commercial Line business’ pretax income predicts a 13% year-over-year jump, whereas our estimate suggests a 14.9% increase. Similarly, the Zacks Consensus Estimate for the Group Benefits business’ pretax income is pegged at $107.2 million while our estimate stands at $75.5 million profit against the year-ago loss of $10 million.

The factors stated above are anticipated to have positioned the company for year-over-year growth in the first quarter. However, there are some factors that are likely to have dampened the upside potential, making an earnings beat uncertain. The consensus mark for fee income for the first quarter indicates a 9.1% decline from the year-ago level, while our estimate suggests an 8.4% decline.

Also, margins are likely to have been affected by steep expenses despite its cost-curbing measures. Our estimate for total expenses suggests a 6.9% increase in the first quarter. Benefits, losses and operating expenses are expected to have increased in the quarter under review, eating a chunk of the profits.

Moreover, the company’s preliminary estimate for P&C current accident year CAT losses stands at $185 million prior tax, caused by winter storms and other incidents. Combined ratios in Personal Lines and Commercial Lines are expected to have jumped in the first quarter due to multiple incidents including auto physical damage and liability losses.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Hartford Financial this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. That is not the case here, as you will see below.

Earnings ESP: The company’s Earnings ESP is 0.00%. This is because the Most Accurate Estimate is currently pegged at $1.68 per share, in line with the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Hartford Financial currently carries a Zacks Rank #3.

Stocks to Consider

While an earnings beat looks uncertain for Hartford Financial, here are some companies from the broader finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

Owl Rock Capital Corporation ORCC has an Earnings ESP of +0.47% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Owl Rock Capital’s bottom line for the to-be-reported quarter is pegged at 43 cents per share, implying a 38.7% jump from the year-ago figure. ORCC beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2.1%.

Aon plc AON has an Earnings ESP of +0.80% and a Zacks Rank of 3.

The Zacks Consensus Estimate for AON’s bottom line for the to-be-reported quarter is pegged at $5.26 per share, which witnessed three upward estimate revisions in the past 30 days against none in the opposite direction. AON beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2.1%.

RenaissanceRe Holdings Ltd. RNR has an Earnings ESP of +3.37% and a Zacks Rank of 3.

The Zacks Consensus Estimate for RenaissanceRe’s bottom line for the to-be-reported quarter is pegged at $7.34 per share, suggesting a 109.7% year-over-year increase. RNR beat earnings estimates in two of the past four quarters and missed on the other two occasions.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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

RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report

Aon plc (AON) : Free Stock Analysis Report

Owl Rock Capital Corporation (ORCC) : Free Stock Analysis Report

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