Wednesday, July 29, 2009

Hartford Insurance Not Trading on Earnings Estimates

The current consensus estimates for the Q2 report to be reported by Hartford Insurance (HIG) after the close today is for $1.16. This estimate is pretty much in line with what HIG guided for after the Q1 report. Currently trading only above $15 today suggests that the market gives little value to those estimates. At a run rate above $4, HIG has a PE of just 4. Also with a book value above $40, HIG has two valuation metrics that suggest a much, much higher price.

Why isn't it trading higher? Mainly because the market in general expects HIG to warn yet again. They've had a tough year or so and the market is typically slow to change opinions usually requiring a company to prove it first. Take Canseco (CNO) today. They are up 50% based on what appears to be in line results for them. After that, they still only trade at a PE of 3.

With the huge rebound in the stock market, it's puzzling why Hartford is being so ignored. So much of their troubles came from investments tied to the stock and bond markets. Losses if actually realized could have wiped them out. Maybe this just means that so many investors still think the market is going to have a huge drop leading to more trouble at HIG. If so, these results won't really mean much to them, but it will slap some longs into action realizing that HIG is on the mend. Given this scenario its likely that anybody interested in buying HIG will have a while to jump on the bandwagon. Valuation metrics suggest a stock price easily in the $40-50 range assuming they match estimates. Hartford is afterall a premium brand.

StoneFox isn't expecting them to beat estimates and we're actually concerned that they'll miss, but anything positive over say $0.70 likely pushes the stock up. HIG is not trading like it'll be highly profitable anytime soon, much less last Q.

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