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The Hartford's Strategic Initiatives Impress, Cat Losses a Drag

On Apr 11, 2016, we issued an updated research report on The Hartford Financial Services Group, Inc. HIG.

By undertaking a number of strategic initiatives including the well-executed strategic dispositions of its legacy run-off businesses, The Hartford has improved its risk profile. The company has been divesting non-core businesses to concentrate on its U.S. operations and enhance its operating leverage. Such divestitures will not only generate strong revenues for the company but also enable it to hold a strong market position.

Owing to improved earnings performance, positive credit trends and strengthened capital and liquidity position, the company has been able to stabilize itself, since mid-2010. The company’s focus on expanding its product portfolio and underwriting capabilities, enhancing distribution effectiveness, improving customer experience and operating efficiency, are expected to boost earnings further.

Capital appreciations, repayment of government funds and measures to de-risk its balance sheet have increased the company’s financial strength. The company also displays intelligent capital management by regularly returning excess capital to shareholders via dividend increases and share buybacks.

The company is now looking forward to more transactions to increase capital release. This in turn should help in executing proficient capital management plans and creating shareholder value. The Hartford projects $1.3 billion of share repurchases for 2016.

However, exposure to catastrophe losses remains a near-term headwind, thereby posing operating risks. Moreover, a low interest rate environment had a negative impact on the company’s investment income. The company has also been witnessing weak results with respect to Talcott Resolution segment.

Going by the surprise trend, the company posted positive surprise in three of the last four quarters. The Hartford is set to report first-quarter 2016 results on Apr 28. The Zacks Consensus Estimate for the same is currently pegged at $1.03 per share, which translates to a year-over-year decline of 0.60%.

Nonetheless, our proven model shows that the company is likely to beat earnings because it has the perfect combination of two key ingredients. The company holds a Zacks Rank #3 (Hold) that increases the predictive power of an earnings beat and has a +5.83% Earnings ESP, which makes us reasonably confident of a positive earnings beat.

Stocks to Consider

Some better-ranked stocks are AXA Group AXAHY, Swiss Re Ltd. SSREY and SCOR SE SCRYY. While both AXA Group and Swiss Re sport a Zacks Rank #1 (Strong Buy), SCOR SE holds a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. blog">Click to get this free report >>

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
HARTFORD FIN SV (HIG): Free Stock Analysis Report
AXA SA -SP ADR (AXAHY): Free Stock Analysis Report
SCOR ADR (SCRYY): Free Stock Analysis Report
SWISS RE LTD (SSREY): Free Stock Analysis Report
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