On April 1, 2014, shares of The Hanover Insurance Group Inc. (THG) touched a 52-week high of $61.87. The momentum was driven by sustained solid earnings results and capital deployment initiatives at the company. The one-year return from the stock came in at 24.2%, ahead of the S&P’s return of 20.2%.
With respect to earnings performance, the property and casulty insurer delivered positive earnings surprises in all of the last 4 quarters with an average beat of about 30%. The last reported earnings figure at Hanover clocked a positive surprise beat of 9.1% while the top line exceeded the Zacks Consensus Estimare by 1.7%. Year 2013 witnessed Hanover delivering record earnings per share and pre-tax earnings since it went public in 1956.
Underwriting results, at Hanover, in 2013 improved with the combined ratio improving 770 basis points attributable to a benign cat environment. The company expects to achieve a combined ratio of 95% in 2014.
With respect to capital management, in 2013 Hanover spent $78 million to repurchase 1.6 million shares. Capitalizing on market fluctuations, the company has already bought back $5 million worth of shares in the first quarter of 2014. It is now left with $132 million remaining under its authorization. In the last reported quarter, the company also bought back debt worth $34 million. Debt balance at 2013-end totaled $904 million with debt-to-capital ratio of 26%.
Hanover has been increasing its dividend over the last 15 years. It has increased its dividend at a 4-year CAGR of 10.3%. With an annual dividend of $1.48 per share, its dividend yields 2.4%, better than the industry average of 2.2%.
Book value improved 8% in 2013 riding on solid earnings and capital management actions.
These positives led the Zacks Consensus Estimate to rise by 1.5% for 2014 and by 0.2% for 2015 over the last 60 days. The Zacks Consensus Estimate is currently pegged at $4.74 for 2014 and at $5.30 for 2015.
Hanover Insurance presently carries a Zacks Rank #3 (Hold). Some better-ranked property and casualty insurers worth considering include Alleghany Corporation (Y), AmTrust Financial Services, Inc. (AFSI) and Atlas Financial Holdings, Inc. (AFH). All these stocks sport a Zacks Rank #1 (Strong Buy).
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