Wednesday, October 01, 2008

Hartford’s (NYSE:HIG): Capital Concerns Look Significantly Overdone - Morgan Stanley

Morgan Stanley recommends investors take advantage of what they believe is unwarranted
pressure on Hartford’s (NYSE:HIG) stock reflecting escalating concerns over the company’s capital adequacy.

While there is little doubt the company has taken some substantial hits this quarter, they still arrive at the conclusion that its capital position is more than adequate to support its ratings.

Even if we were to see further market deterioration, driving the need for incremental capital, MSCO's bear-case would still suggest substantial upside in the stock from present levels.

Capital Concerns Appear Overblown… The outlook for Hartford’s financial strength ratings were reduced to negative from stable at Fitch, which triggered concerns among investors over whether it has sufficient capital. Analysis leads the firm to the conclusion that these concerns are largely unwarranted, with other companies such as Principal and Genworth, even Lincoln, likely to face capital challenges before Hartford.

Valuation now looks Compelling: Hartford is facing highly challenging credit and equity market conditions, which is leading the firm to reduce estimates for both 2008 and 2009. However, even after taking a conservative view on the fundamental outlook, the valuation looks compelling, trading at just 4.7 times 2009 estimate and 75% of Y/E 2009 expected reported book. To justify where the stock is presently trading, they estimate it would need to raise $7.0 billion of equity at price of $30, which illustrates just how far the stock is now trading away from view of its intrinsic value.

What’s next: Firm expects management will provide an update to investors on its capital position through a press release in the coming days. Beyond that, earnings are due to be released on October 29.

Notablecalls: Worth a bounce, no?

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