Monday, February 8, 2010

Hartford Financial HIG

(If Morgan cant spin this then I dont know anyone that could maybe Santa Clause but hes the only one that could do it)

In-line earnings, guidance below: Hartford reported operating EPS of $1.51, $0.02 below our estimate of $1.53 but in-line with its guidance range of $1.45-1.60 issued in January. Management also issued guidance for 2010 of $3.70-4.00, with the mid-point of $3.85 running below our prior estimate of $4.05. We would also note this is based on a 9% appreciation on the starting level of the S&P500 of 1155 for the year, which given the current level of 1056, may prove aggressive, making the lower end of the range more likely.

• Life and annuity – modestly below: Excluding DAC and restructuring charges, earnings ran $12 million below expectations, with the most notable shortfalls in retirement and life insurance. Flows were a mixed bag, but in aggregate, fell below expectations on less than expected mutual fund inflows.

• Property casualty — above: Excluding the previously announced prior year reserve release, core results were modestly ahead of expectations, with a combined ratio (ex-cats and PY) of 92.6%. Net written premiums declined 5%, a little better than the 7% decline we had expected.

• Balance Sheet - upside: Reported book value grew more than expected to $38.92, although when we back out all TARP capital and look at common equity per diluted shares, we arrive at $34.90.

• Implications: While the overall core results were largely in-line with expectations, the weaker than expected outlook for 2010 suggests the core franchise of the company remains under pressure. While this is arguably already reflected in the stock’s current valuation, we nonetheless see better risk-adjusted returns elsewhere, leading us to reiterate our Equal-weight rating.

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