THG Stock Trading at a Premium to Industry: Should You Buy?

The Hanover Insurance Group THG shares are trading at a premium to the Zacks Property and Property Insurance industry. Its price-to-book of 2.04X is higher than the industry average of 1.63X.It has a Value Score of A. This style score helps find the most attractive value stocks. Back-tested results have shown that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) are the most attractive value stocks.This company has a market capitalization of $5.2 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 shares have gained 16.7% in the past three months, outperforming its industry, the sector and the Zacks S&P 500 composite’s return in the same time frame. Continued strong performing 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 500 in 3 MonthsImage Source: Zacks Investment ResearchTHG Trading Above 50-Day Moving AverageTHG shares are trading well above the 50-day moving average, indicating a bullish trend. Shares are trading near the high end of the company’s 52-week range.  Optimistic Analyst Sentiment Instills Confidence in THGOne of the four analysts covering the stock has raised estimates for 2024 and 2025 over the past 60 days. The consensus estimate for 2024 and 2025 earnings has moved 0.8% and 0.4% north, respectively, in the past 30 days.The Zacks Consensus Estimate for 2024 implies a 604.5% year-over-year increase, while the same for 2025 suggests a 23.2% increase.Factors Favoring Hanover InsuranceHanover Insurance is a leading carrier with a specialty focus on small-to-midsize clients. It aims to be a premier P&C franchise in the independent agency channel. It operates in a total addressable $78 billion market and thus targets delivering about 10% CAGR in Specialty written premiums over the next five years and in the upper single digits in 2024.Pricing segmentation, rate increase and an emphasis on growth in target states, product lines and industry classes in the middle market should help THG grow. 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, built a diversified book of business for Hanover Insurance. THG continues to invest in technology to upgrade its front-end capabilities, which continue to bear fruit.THG’s 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.Though high interest rates provided an upside to investment income, the recent rate cut will limit the same. In its efforts to enhance shareholders' value, Hanover Insurance has been hiking dividends for the last 17 years, apart from paying special dividends. Its dividend yield of 2.4% betters the industry average of 0.3%, making it an attractive pick for yield-seeking investors.  THG’s Return on CapitalTHG’s return on equity has also been improving over the last few quarters, reflecting its efficiency in utilizing shareholders’ funds. The trailing 12 months ROE was 12.4%, which compared favorably with the industry average of 8%.Return on invested capital has been improving over the last few quarters, reflecting THG’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 5.3%, comparing unfavorably with the industry’s average of 6.1%. Average Target Price for THG Suggests an UpsideBased on short-term price targets offered by seven analysts, the Zacks average price target is $157.14 per share. The average suggests a potential 5.4% upside from Monday’s closing price of $144.81.To ConcludeTHG’s sustainable competitive advantage in the independent agency market, focus on further expansion of Specialty business, solid agency partnerships and lowered exposure on property lines in challenging geographies are impressive. 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. Therefore, despite its expensive valuation, these tailwinds make this Zacks Rank #2 stock worth buying. You can see the complete list of today’s Zacks #1 Rank stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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