FBR Capital Upgrades Hartford Financial Services (HIG) to Outperform

FBR Capital upgraded Hartford Financial Services (NYSE: HIG) from Market Perform to Outperform with a price target of $44.00 (from $37.00).

Analyst Randy Binner comments, "The key Debatable Point on HIG is the value of Talcott (the U.S. annuity runoff) and whether management can create more value by selling the runoff now versus running it off internally. Our FCF analysis of Talcott indicates that the segment’s NPV is ~$4.4B versus the ~$3.8B (75% of statutory capital) we estimate HIG could fetch in a sale. Our sense is that the bull case on HIG has centered on the potential for a near-term sale of the runoff, but our analysis supports internal runoff as the preferred outcome. The optimal outcome in our analysis is a five-year runoff and then a sale, which could generate ~$4.6B. As for the argument that HIG could see materially lower beta and WACC by de-risking now, we point out that initial market reaction to runoff divestitures by CNO and XL (in our coverage) has been muted and focused on lost BV. HIG's runoff would be a big Band-Aid to rip off; a near-term runoff sale could hit BV and 2015 EPS by ~15%. If the company waits a few years, these impacts should be smaller as the runoff shrinks and the rest of HIG grows."

For an analyst ratings summary and ratings history on Hartford Financial Services click here. For more ratings news on Hartford Financial Services click here.

Shares of Hartford Financial Services closed at $36.66 yesterday.

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