Intrinsic value of Hartford Financial Services Group - HIG

Previous Close

$55.56

  Intrinsic Value

$177.55

stock screener

  Rating & Target

str. buy

+220%

  Value-price divergence*

-8%

Previous close

$55.56

 
Intrinsic value

$177.55

 
Up/down potential

+220%

 
Rating

str. buy

 
Value-price divergence*

-8%

Our model is not good at valuating stocks of financial companies, such as HIG.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HIG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 21.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.65
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  0
  19,282
  20,246
  21,259
  22,322
  23,438
  24,610
  25,840
  27,132
  28,489
  29,913
  31,409
  32,979
  34,628
  36,359
  38,177
  40,086
  42,091
  44,195
  46,405
  48,725
  51,161
  53,719
  56,405
  59,226
  62,187
  65,296
  68,561
  71,989
  75,589
  79,368
Variable operating expenses, $m
 
  16,850
  17,689
  18,571
  19,497
  20,469
  21,489
  22,561
  23,686
  24,868
  26,108
  27,354
  28,722
  30,158
  31,666
  33,249
  34,912
  36,657
  38,490
  40,415
  42,435
  44,557
  46,785
  49,124
  51,580
  54,159
  56,867
  59,711
  62,696
  65,831
  69,123
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  17,221
  16,850
  17,689
  18,571
  19,497
  20,469
  21,489
  22,561
  23,686
  24,868
  26,108
  27,354
  28,722
  30,158
  31,666
  33,249
  34,912
  36,657
  38,490
  40,415
  42,435
  44,557
  46,785
  49,124
  51,580
  54,159
  56,867
  59,711
  62,696
  65,831
  69,123
Operating income, $m
  1,143
  2,432
  2,557
  2,688
  2,825
  2,969
  3,120
  3,279
  3,446
  3,621
  3,805
  4,054
  4,257
  4,470
  4,694
  4,928
  5,175
  5,433
  5,705
  5,990
  6,290
  6,604
  6,935
  7,281
  7,645
  8,028
  8,429
  8,850
  9,293
  9,758
  10,245
EBITDA, $m
  3,064
  2,593
  2,723
  2,859
  3,002
  3,152
  3,310
  3,475
  3,649
  3,831
  4,023
  4,224
  4,435
  4,657
  4,890
  5,134
  5,391
  5,661
  5,944
  6,241
  6,553
  6,881
  7,225
  7,586
  7,965
  8,363
  8,782
  9,221
  9,682
  10,166
  10,674
Interest expense (income), $m
  336
  328
  660
  1,348
  2,070
  2,829
  3,625
  4,461
  5,339
  6,260
  7,228
  8,244
  9,311
  10,432
  11,608
  12,843
  14,140
  15,502
  16,932
  18,433
  20,010
  21,665
  23,403
  25,228
  27,144
  29,157
  31,269
  33,487
  35,817
  38,262
  40,830
Earnings before tax, $m
  804
  2,104
  1,897
  1,340
  755
  140
  -505
  -1,182
  -1,893
  -2,640
  -3,423
  -4,190
  -5,054
  -5,962
  -6,915
  -7,915
  -8,966
  -10,069
  -11,227
  -12,443
  -13,720
  -15,061
  -16,469
  -17,947
  -19,499
  -21,129
  -22,840
  -24,637
  -26,524
  -28,505
  -30,585
Tax expense, $m
  -92
  568
  512
  362
  204
  38
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  896
  1,536
  1,385
  978
  551
  102
  -505
  -1,182
  -1,893
  -2,640
  -3,423
  -4,190
  -5,054
  -5,962
  -6,915
  -7,915
  -8,966
  -10,069
  -11,227
  -12,443
  -13,720
  -15,061
  -16,469
  -17,947
  -19,499
  -21,129
  -22,840
  -24,637
  -26,524
  -28,505
  -30,585

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  223,432
  235,149
  246,906
  259,252
  272,214
  285,825
  300,116
  315,122
  330,878
  347,422
  364,793
  383,033
  402,184
  422,293
  443,408
  465,579
  488,857
  513,300
  538,965
  565,914
  594,209
  623,920
  655,116
  687,871
  722,265
  758,378
  796,297
  836,112
  877,918
  921,814
  967,904
Adjusted assets (=assets-cash), $m
  223,432
  235,149
  246,906
  259,252
  272,214
  285,825
  300,116
  315,122
  330,878
  347,422
  364,793
  383,033
  402,184
  422,293
  443,408
  465,579
  488,857
  513,300
  538,965
  565,914
  594,209
  623,920
  655,116
  687,871
  722,265
  758,378
  796,297
  836,112
  877,918
  921,814
  967,904
Revenue / Adjusted assets
  0.000
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
  0.082
Average production assets, $m
  983
  1,041
  1,093
  1,148
  1,205
  1,266
  1,329
  1,395
  1,465
  1,538
  1,615
  1,696
  1,781
  1,870
  1,963
  2,062
  2,165
  2,273
  2,387
  2,506
  2,631
  2,763
  2,901
  3,046
  3,198
  3,358
  3,526
  3,702
  3,887
  4,082
  4,286
Working capital, $m
  0
  443
  466
  489
  513
  539
  566
  594
  624
  655
  688
  722
  759
  796
  836
  878
  922
  968
  1,016
  1,067
  1,121
  1,177
  1,236
  1,297
  1,362
  1,430
  1,502
  1,577
  1,656
  1,739
  1,825
Total debt, $m
  5,052
  10,157
  20,739
  31,849
  43,516
  55,765
  68,627
  82,133
  96,313
  111,203
  126,837
  143,252
  160,489
  178,587
  197,590
  217,544
  238,495
  260,493
  283,592
  307,845
  333,311
  360,051
  388,127
  417,607
  448,562
  481,063
  515,191
  551,024
  588,649
  628,155
  669,637
Total liabilities, $m
  206,529
  211,634
  222,216
  233,326
  244,993
  257,242
  270,104
  283,610
  297,790
  312,680
  328,314
  344,729
  361,966
  380,064
  399,067
  419,021
  439,972
  461,970
  485,069
  509,322
  534,788
  561,528
  589,604
  619,084
  650,039
  682,540
  716,668
  752,501
  790,126
  829,632
  871,114
Total equity, $m
  16,903
  23,515
  24,691
  25,925
  27,221
  28,582
  30,012
  31,512
  33,088
  34,742
  36,479
  38,303
  40,218
  42,229
  44,341
  46,558
  48,886
  51,330
  53,897
  56,591
  59,421
  62,392
  65,512
  68,787
  72,227
  75,838
  79,630
  83,611
  87,792
  92,181
  96,790
Total liabilities and equity, $m
  223,432
  235,149
  246,907
  259,251
  272,214
  285,824
  300,116
  315,122
  330,878
  347,422
  364,793
  383,032
  402,184
  422,293
  443,408
  465,579
  488,858
  513,300
  538,966
  565,913
  594,209
  623,920
  655,116
  687,871
  722,266
  758,378
  796,298
  836,112
  877,918
  921,813
  967,904
Debt-to-equity ratio
  0.299
  0.430
  0.840
  1.230
  1.600
  1.950
  2.290
  2.610
  2.910
  3.200
  3.480
  3.740
  3.990
  4.230
  4.460
  4.670
  4.880
  5.070
  5.260
  5.440
  5.610
  5.770
  5.920
  6.070
  6.210
  6.340
  6.470
  6.590
  6.710
  6.810
  6.920
Adjusted equity ratio
  0.076
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  896
  1,536
  1,385
  978
  551
  102
  -505
  -1,182
  -1,893
  -2,640
  -3,423
  -4,190
  -5,054
  -5,962
  -6,915
  -7,915
  -8,966
  -10,069
  -11,227
  -12,443
  -13,720
  -15,061
  -16,469
  -17,947
  -19,499
  -21,129
  -22,840
  -24,637
  -26,524
  -28,505
  -30,585
Depreciation, amort., depletion, $m
  1,921
  161
  166
  171
  177
  183
  190
  196
  203
  211
  218
  170
  178
  187
  196
  206
  216
  227
  239
  251
  263
  276
  290
  305
  320
  336
  353
  370
  389
  408
  429
Funds from operations, $m
  1,297
  1,697
  1,551
  1,149
  728
  286
  -315
  -986
  -1,690
  -2,429
  -3,205
  -4,020
  -4,876
  -5,775
  -6,718
  -7,709
  -8,749
  -9,841
  -10,988
  -12,193
  -13,457
  -14,785
  -16,179
  -17,642
  -19,179
  -20,793
  -22,488
  -24,267
  -26,135
  -28,096
  -30,156
Change in working capital, $m
  -769
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
Cash from operations, $m
  2,066
  1,676
  1,528
  1,126
  704
  260
  -342
  -1,014
  -1,719
  -2,460
  -3,238
  -4,055
  -4,912
  -5,813
  -6,758
  -7,751
  -8,793
  -9,888
  -11,037
  -12,243
  -13,510
  -14,841
  -16,238
  -17,704
  -19,244
  -20,861
  -22,559
  -24,342
  -26,214
  -28,179
  -30,243
Maintenance CAPEX, $m
  0
  -98
  -104
  -109
  -115
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -170
  -178
  -187
  -196
  -206
  -216
  -227
  -239
  -251
  -263
  -276
  -290
  -305
  -320
  -336
  -353
  -370
  -389
  -408
New CAPEX, $m
  -224
  -59
  -52
  -55
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -114
  -119
  -125
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -204
Cash from investing activities, $m
  949
  -157
  -156
  -164
  -172
  -181
  -190
  -199
  -210
  -220
  -231
  -243
  -255
  -267
  -280
  -294
  -309
  -324
  -341
  -358
  -376
  -395
  -414
  -435
  -457
  -480
  -504
  -529
  -555
  -583
  -612
Free cash flow, $m
  3,015
  1,519
  1,372
  962
  531
  79
  -532
  -1,213
  -1,929
  -2,680
  -3,469
  -4,297
  -5,167
  -6,080
  -7,039
  -8,045
  -9,102
  -10,212
  -11,378
  -12,601
  -13,886
  -15,235
  -16,652
  -18,139
  -19,701
  -21,341
  -23,063
  -24,871
  -26,769
  -28,762
  -30,855
Issuance/(repayment) of debt, $m
  -104
  5,105
  10,582
  11,111
  11,666
  12,250
  12,862
  13,505
  14,180
  14,890
  15,634
  16,416
  17,236
  18,098
  19,003
  19,953
  20,951
  21,999
  23,099
  24,253
  25,466
  26,739
  28,076
  29,480
  30,954
  32,502
  34,127
  35,833
  37,625
  39,506
  41,482
Issuance/(repurchase) of shares, $m
  -1,321
  5,076
  0
  257
  745
  1,259
  1,934
  2,682
  3,469
  4,294
  5,161
  6,014
  6,969
  7,973
  9,026
  10,132
  11,294
  12,513
  13,794
  15,138
  16,550
  18,032
  19,588
  21,223
  22,939
  24,740
  26,632
  28,618
  30,704
  32,894
  35,194
Cash from financing (excl. dividends), $m  
  -2,207
  10,181
  10,582
  11,368
  12,411
  13,509
  14,796
  16,187
  17,649
  19,184
  20,795
  22,430
  24,205
  26,071
  28,029
  30,085
  32,245
  34,512
  36,893
  39,391
  42,016
  44,771
  47,664
  50,703
  53,893
  57,242
  60,759
  64,451
  68,329
  72,400
  76,676
Total cash flow (excl. dividends), $m
  768
  11,699
  11,954
  12,330
  12,943
  13,587
  14,264
  14,974
  15,720
  16,503
  17,326
  18,133
  19,039
  19,991
  20,991
  22,040
  23,142
  24,299
  25,514
  26,790
  28,130
  29,536
  31,013
  32,563
  34,192
  35,901
  37,696
  39,581
  41,560
  43,638
  45,820
Retained Cash Flow (-), $m
  739
  -6,612
  -1,176
  -1,235
  -1,296
  -1,361
  -1,934
  -2,682
  -3,469
  -4,294
  -5,161
  -6,014
  -6,969
  -7,973
  -9,026
  -10,132
  -11,294
  -12,513
  -13,794
  -15,138
  -16,550
  -18,032
  -19,588
  -21,223
  -22,939
  -24,740
  -26,632
  -28,618
  -30,704
  -32,894
  -35,194
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,088
  10,778
  11,095
  11,647
  12,226
  12,330
  12,292
  12,252
  12,210
  12,165
  12,119
  12,070
  12,019
  11,965
  11,908
  11,849
  11,786
  11,721
  11,652
  11,580
  11,504
  11,424
  11,341
  11,253
  11,161
  11,064
  10,963
  10,856
  10,744
  10,626
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  4,873
  9,847
  9,625
  9,548
  9,422
  8,884
  8,231
  7,577
  6,927
  6,286
  5,659
  5,053
  4,472
  3,920
  3,402
  2,921
  2,479
  2,079
  1,721
  1,406
  1,132
  898
  700
  537
  405
  299
  217
  154
  106
  72
Current shareholders' claim on cash, %
  100
  80.5
  80.5
  79.8
  78.0
  75.2
  71.3
  66.5
  61.1
  55.3
  49.4
  43.6
  38.0
  32.8
  28.0
  23.6
  19.8
  16.4
  13.5
  11.0
  8.9
  7.1
  5.7
  4.5
  3.6
  2.8
  2.2
  1.7
  1.3
  1.0
  0.8

The Hartford Financial Services Group, Inc., through its subsidiaries, provides insurance and financial services to individual and business customers in the United States. It operates through six segments: Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds, and Talcott Resolution. The Commercial Lines segment offers workersÂ’ compensation, property, automobile, liability, umbrella, marine, and livestock insurance, as well as customized insurance products and services, including general liability, professional liability, bond, and specialty casualty coverages. The Personal Lines segment provides automobile, homeowners, and personal umbrella coverages to individuals. The Property & Casualty Other Operations segment manages property and casualty insurance. The Group Benefits segment offers group life, accident and disability coverage, and group retiree health to employer groups, associations, and affinity groups; and disability underwriting, administration, claims processing, and reinsurance to other insurers and self-funded employer plans. The Mutual Funds segment provides investment products for retail and retirement accounts; and investment-management and administrative services, such as product design, implementation, and oversight, as well as the runoff of the mutual funds supporting the company's variable annuity products. The Talcott Resolution segment engages in the U.S. annuity, institutional, and private-placement life insurance businesses. It has a research partnership with UCLA Anderson Forecast to understand the critical economic issue and other trends affecting small business. The Hartford Financial Services Group, Inc. was founded in 1810 and is headquartered in Hartford, Connecticut.

FINANCIAL RATIOS  of  Hartford Financial Services Group (HIG)

Valuation Ratios
P/E Ratio 23.2
Price to Sales 1.1
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 11.3
Growth Rates
Sales Growth Rate -0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 27.4%
Total Debt to Equity 29.9%
Interest Coverage 3
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity 5.2%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 16.7%
EBITDA Margin - 3 Yr. Avg. 20.4%
Operating Margin 6.2%
Oper. Margin - 3 Yr. Avg. 10%
Pre-Tax Margin 4.4%
Pre-Tax Margin - 3 Yr. Avg. 8.1%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 6.1%
Effective Tax Rate -11.4%
Eff/ Tax Rate - 3 Yr. Avg. 8.2%
Payout Ratio 37.3%

HIG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HIG stock intrinsic value calculation we used $18364 million for the last fiscal year's total revenue generated by Hartford Financial Services Group. The default revenue input number comes from 2016 income statement of Hartford Financial Services Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HIG stock valuation model: a) initial revenue growth rate of 5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.4%, whose default value for HIG is calculated based on our internal credit rating of Hartford Financial Services Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hartford Financial Services Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HIG stock the variable cost ratio is equal to 87.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HIG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.5% for Hartford Financial Services Group.

Corporate tax rate of 27% is the nominal tax rate for Hartford Financial Services Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HIG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HIG are equal to 5.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Hartford Financial Services Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HIG is equal to 2.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $16903 million for Hartford Financial Services Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 377.34 million for Hartford Financial Services Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hartford Financial Services Group at the current share price and the inputted number of shares is $21.0 billion.

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COMPANY NEWS

▶ The Hartford reports 2Q loss   [Jul-27-17 10:28PM  Associated Press]
▶ Risk Happens Fast: Doug Kass   [Jul-14-17 09:43AM  TheStreet.com]
▶ [$$] Hartfords Finances Spotlight Property-Tax Quandary   [Jun-07-17 12:17AM  The Wall Street Journal]
▶ Hartford Expands ETF Lineup With 2 Low Vol Funds   [May-12-17 10:13AM  Benzinga]
▶ The Hartford misses 1Q profit forecasts   [Apr-27-17 04:58PM  Associated Press]
▶ The Hartford Names First Chief Digital and Customer Experience Officer   [Apr-04-17 04:50PM  The Wall Street Journal]
▶ The Hartford Names Morris Tooker Head Of Middle Market   [Mar-30-17 09:15AM  Business Wire]
▶ 3 Top-Ranked Hartford Mutual Funds to Consider   [Mar-29-17 09:52AM  Zacks]
▶ 3 Top-Ranked Hartford Mutual Funds to Consider   [09:52AM  at Investopedia]
▶ Another Small Win For Franklin Resources   [11:49AM  Barrons.com]
▶ Another Small Win For Franklin Resources   [11:49AM  at Barrons.com]
▶ Retail Doing Better; Moving Slightly Net Long: Best of Kass   [Mar-24-17 09:00PM  TheStreet.com]
▶ Hartford Expands ETF Lineup With 2 New Bond Funds   [Mar-23-17 11:45AM  Benzinga]
▶ [$$] Hartford Financial Ends $15 Billion Fund Fight   [Mar-22-17 07:16PM  at The Wall Street Journal]
Stock chart of HIG Financial statements of HIG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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