Credit Suisse analyst Ryan Tunis wrote in a Dec. 19 research note that he prefers The Hartford Financial Services Group Inc. over Chubb Ltd. going into 2018.
Tunis wrote that there is less margin downside for The Hartford in 2018 and noted that company's shares do not reflect its private market value. Pending tax reform would benefit both The Hartford and Chubb, but he believes that the latter "should benefit far less."
He upgraded The Hartford to "outperform" from "neutral," writing that the company's stock does not reflect the value of the company's deferred tax assets nor any kind of takeout premium on the existing businesses.
Tunis wrote that the sale of Talcott Resolution Inc. helps transform The Hartford into a "smaller, simpler company" that "should expand the opportunity set of potential acquirers."
Headed into 2018, he believes that The Hartford is well-positioned for an inflationary environment given limited expectations for reserve releases and higher exposure to workers' compensation reserves.
He raised his price target on The Hartford to $65 from $57. His 2017 adjusted EPS estimate is $3.62. He increased his adjusted EPS estimates to $4.63 from $3.95 for 2018 and to $5.11 from $4.40 for 2018.
Tunis downgraded Chubb to "neutral" from "outperform" while maintaining the $156 target price.
He wrote that the integration of ACE Ltd. with Chubb has been successful and it has put Chubb in a good position for the future. With the integration coming to a close in the fourth quarter, he said it would be difficult for him to calculate the upside to medium-term EPS and noted that the company's shares seem to be "fully valued."
Tunis believes that Chubb would benefit from a hard property and casualty market, but he believes that expectations around the company's profitability may have to be "adjusted down" before the impact of harder casualty prices can be taken into account.
His adjusted EPS estimates are $7.32 for 2017, $11.46 for 2018 and $12.16 for 2019.
