Property & Casualty Insurance company Hartford Financial Services is standing out today, surging to $109.63 and marking a 7.1% change. In comparison the S&P 500 moved only 1.0%.
HIG currently sits within range of its analyst target price of $110.08, which implies that its price may remain stable for the near future.
Surprisingly, analysts give the stock an average rating of buy, which shows that they believe prices could continue to move. Over the last year, Hartford Financial Services shares have outperformed the S&P 500 by 33.6%, with a price change of 52.5%.
The Hartford Financial Services Group, Inc., together with its subsidiaries, provides insurance and financial services to individual and business customers in the United States, the United Kingdom, and internationally. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
Hartford Financial Services's trailing 12 month P/E ratio is 11.5, based on its trailing EPS of $9.5. The company has a forward P/E ratio of 9.6 according to its forward EPS of $11.44 -- which is an estimate of what its earnings will look like in the next quarter.
As of the second quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 19.48, and the S&P 500 has an average of 28.21. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.
When we divide Hartford Financial Services's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.98. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing HIG's growth potential .
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Hartford Financial Services's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 4,220,000 | 215,000 | 4,005,000 | 4.49 |
| 2022 | 4,008,000 | 175,000 | 3,833,000 | -3.21 |
| 2021 | 4,093,000 | 133,000 | 3,960,000 | 5.4 |
| 2020 | 3,871,000 | 114,000 | 3,757,000 | 11.02 |
| 2019 | 3,489,000 | 105,000 | 3,384,000 | 24.37 |
| 2018 | 2,843,000 | 122,000 | 2,721,000 |
- Average free cash flow: $3.61 Billion
- Average free cash flown growth rate: 5.6 %
- Coefficient of variability (the lower the better): 0.0 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in HIG have received an annualized dividend yield of 1.8% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Hartford Financial Services's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.85 as of the second quarter of 2024.
Hartford Financial Services is by most measures undervalued because it has a Very low P/E ratio, an average P/B ratio, and generally positive cash flows with an upwards trend. The stock has mixed growth prospects because it has a an average PEG ratio and weak operating margins with a stable trend. We hope you enjoyed this overview of HIG's fundamentals.
