Old Republic International Corporation (NYSE:ORI) shares are down more than -0.15% this year and recently increased 2.11% or $0.42 to settle at $20.32. The Hartford Financial Services Group, Inc. (NYSE:HIG), on the other hand, is down -4.94% year to date as of 02/12/2018. It currently trades at $53.50 and has returned -3.74% during the past week.
Old Republic International Corporation (NYSE:ORI) and The Hartford Financial Services Group, Inc. (NYSE:HIG) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Comparatively, HIG is expected to grow at a 11.60% annual rate. All else equal, HIG’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 5.68% for The Hartford Financial Services Group, Inc. (HIG). ORI’s ROI is 8.60% while HIG has a ROI of 5.60%. The interpretation is that ORI’s business generates a higher return on investment than HIG’s.
If there’s one thing investors care more about than earnings, it’s cash flow. On a percent-of-sales basis, ORI’s free cash flow was 0% while HIG converted 0% of its revenues into cash flow. This means that, for a given level of sales, ORI is able to generate more free cash flow for investors.
ORI’s debt-to-equity ratio is 0.32 versus a D/E of 0.30 for HIG. ORI is therefore the more solvent of the two companies, and has lower financial risk.
ORI trades at a forward P/E of 10.69, a P/B of 1.12, and a P/S of 0.86, compared to a forward P/E of 11.08, a P/B of 1.12, and a P/S of 1.03 for HIG. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. ORI is currently priced at a -18.72% to its one-year price target of 25.00. Comparatively, HIG is -11.39% relative to its price target of 60.38. This suggests that ORI is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for ORI and 2.50 for HIG, which implies that analysts are more bullish on the outlook for HIG.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. ORI has a beta of 1.28 and HIG’s beta is 0.96. HIG’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. ORI has a short ratio of 5.42 compared to a short interest of 1.91 for HIG. This implies that the market is currently less bearish on the outlook for HIG.
Old Republic International Corporation (NYSE:ORI) beats The Hartford Financial Services Group, Inc. (NYSE:HIG) on a total of 7 of the 13 factors compared between the two stocks. ORI is more profitable, generates a higher return on investment and higher liquidity. In terms of valuation, ORI is the cheaper of the two stocks on an earnings and sales basis, ORI is more undervalued relative to its price target. Finally, BRK-B has better sentiment signals based on short interest.