THG Stock Trades at a Premium to the Industry: What Should You Do Now?

The Hanover Insurance Group’s THG shares are trading at a premium to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.93X is higher than the industry average of 1.53X.The company has a Value Score of B. This style score helps find the most attractive value stocks. THG is a leading carrier with a specialty focus on small-to-midsize clients. It operates in a total addressable $78 billion market and has a market capitalization of $5.5 billion. The average volume of shares traded in the last three months was 0.2 million. Image Source: Zacks Investment ResearchThe stock is expensive compared with other players like CNA Financial Corporation CNA and MetLife Inc. MET, which are trading at a discount to the industry average.THG: An Outperformer?THG shares have gained 3.4% in the past three months, in contrast to the industry’s decrease of 1% and the Finance sector’s decrease of 5.2%. However, it has lagged the S&P 500 composite’s rise of 4% in the same time frame.  Continued strong performance of Core Commercial and Specialty segments, stable retention, better pricing, strong market presence and a solid capital position drive shares.THG Vs Industry, Sector & S&P in 3 MonthsImage Source: Zacks Investment ResearchTHG shares are trading well above the 50-day moving average, indicating a bullish trend.THG’s Return on CapitalTHG’s return on equity has also improved over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. The trailing 12-month ROE was 15.5%, which compared favorably with the industry average of 7.6%.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. Return on invested capital has improved over the last few quarters, reflecting THG’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 7.5%, which compared favorably with the industry average of 5.8%.Optimistic Growth Instills Confidence in THG SharesOne of the three analysts covering the stock has raised estimates for 2024, while there has been no change for 2025 over the past seven days. The consensus estimate for 2024 has moved 2 cents north in the past seven days.The Zacks Consensus Estimate for 2024 implies a 623.7% year-over-year increase, while the same for 2025 suggests a 19.8% increase. The stock has a Growth Score of B.Factors Favoring Hanover InsuranceHanover Insurance has evolved as a more balanced and differentiated property and casualty franchise and now envisions to be a premier P&C franchise in the independent agency channel and targets delivering about 10% CAGR in Specialty written premiums over the next five years.A prudent pricing segmentation, rate increases and emphasis on growth in target states, product lines and industry classes in the middle market should help it grow and achieve goals. Hanover Insurance has built a diversified book of business banking on prudent underwriting, data, analytic tools and technology, which, in turn, has lowered coastal exposure and enhanced pricing for catastrophes. THG also continues to invest in technology to upgrade its front-end capabilities.THG claims strategy implementation should help it lower the loss adjustment expense ratio by 130 basis points in 2026 while generating $2 billion in premium growth by the same time frame. It expects 2024 expense ratio to be at or near 30.9 and 30.5 in 2025.Average Target Price for THG Suggests an UpsideBased on short-term price targets offered by seven analysts, the Zacks average price target is $171.14 per share. The average suggests a potential 11.5% upside from Friday’s closing price.What to Do With THG Stock?THG is set to grow on sustainable competitive advantage in the independent agency market, its focus on further expansion of Specialty business, solid agency partnerships and lower exposure to property lines in challenging geographies. The insurer’s dividend history is impressive. As part of wealth distribution, Hanover Insurance has been hiking dividends for the last 20 years, apart from paying special dividends. Its dividend yield of 2.2% is better than the industry average of 0.5%, making it an attractive pick for yield-seeking investors.  A positive growth projection, a higher target price and a VGM Score of A instill confidence in the stock.However, THG’s unfavorable leverage as well as times interest earned keeps us cautious on this Zack Rank #3 (Hold) stock. Also, given its premium valuation, new investors can wait for a better entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report MetLife, Inc. (MET): Free Stock Analysis Report CNA Financial Corporation (CNA): Free Stock Analysis Report The Hanover Insurance Group, Inc. (THG): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks