Here's Why You Should Retain Hanover Insurance (THG) Stock

Zacks Equity Research
·4-min read

The Hanover Insurance Group THG is set to benefit from growth in the Core Commercial and Specialty segments, stable retention, better pricing, strong market presence and solid capital position. These, along with solid growth projections, make the stock worth retaining.

Its shares have gained 3.4% year to date, compared with the industry’s  increase of 13.5%,

However, Hanover Insurance believes that it is well-positioned to achieve a long-term return on equity target of 14% or higher by 2026 on better rates and prudent cost management. This Zacks Rank #3 (Hold) stock has a VGM Score  of B.

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Optimistic Growth Projection

The Zacks Consensus Estimate for THG’s 2024 earnings is pegged at $10.47 per share, indicating an increase of 571.2% on 4.5% higher revenues of $6.3 billion. The Zacks Consensus Estimate for 2025 earnings is pegged at $13.17 per share, indicating an increase of 25.8% on 6.2% higher revenues of $6.7 billion.   

It has a Growth Score of B.

Growth Drivers

Hanover Insurance is a leading carrier with a specialty focus on small to mid-sized clients. It looks to be a premier P&C franchise in the independent agency channel. Capitalizing on the opportunities the $45 billion market offers, the insurer nearly doubled written premiums in Specialty over the last 10 years using organic and inorganic means. It targets to deliver about 10% CAGR over the next five years and in the upper single digits in 2024.

Hanover Insurance’s growth strategy encompasses continued focus on pricing segmentation, mix management, rate increase and an emphasis on growth in target states, product lines and industry classes in the middle market. The company has gradually transformed into a more balanced and differentiated property and casualty franchise.

Prudent underwriting, data, analytic tools and technology have lowered coastal exposure and enhanced pricing for catastrophes, which in turn has built a diversified book of business for Hanover Insurance. The insurer’s claims strategy implementation should poise it to deliver a 130-basis point reduction in the loss adjustment expense ratio by 2026 while generating $2 billion in premium growth by the same time.

In sync with the accelerated digitalization going on in the insurance industry, THG continues to invest in technology to upgrade its front-end capabilities.

Impressive Dividend History

Banking on operational expertise, Hanover Insurance has been hiking dividends for the last 17 years, apart from paying special dividends. Its dividend yield of 2.7% betters the industry average of 0.3%, making it an attractive pick for yield-seeking investors.

Risks

Despite the upside potential, there are a few factors that investors should keep an eye on.

Being an insurer, THG is exposed to catastrophe events that could weigh on underwriting profitability and combined ratio.

Also, its leverage ratio compares unfavorably with the industry average. Its times interest earned, indicating a company’s ability to pay interest on debt obligations, too compares unfavorably with industry.

Stocks to Consider

Some top-ranked stocks from the insurance industry are HCI Group, Inc. HCI, Palomar Holdings PLMR and ProAssurance PRA. Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HCI Group’s earnings surpassed estimates in each of the last four quarters, the average beat being 139.15%. Year to date, shares of HCI have gained 6.1%. The Zacks Consensus Estimate for HCI’s 2024 and 2025 earnings implies 57.6% and 4.3% year-over-year growth, respectively.

Palomar’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 15.10%. Year to date, PLMR’s stock has surged 48.5%. The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings indicates 26% and 18.1% year-over-year growth, respectively.

ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. Year to date, PRA’s stock has lost 11.8%. The Zacks Consensus Estimate for PRA’s 2024 and 2025 earnings implies 371.4% and 72.6% year-over-year growth, respectively.

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