Hartford Financial Services' Quest for TARP Money Met with Skepticism

Hartford Financial Services (HIG) resumes downtrend despite plan to access TARP money

by Joseph Hargett
Schaeffers Research.com
November 17, 2008


Hartford Financial Services (HIG) has been busy lately. On Friday, the company announced that it has applied to become a savings and loan holding company so it can request money under the U.S. Treasury's Troubled Asset Relief Program (TARP). Along these lines, Hartford has agreed to acquire Federal Trust Corp., the parent of Federal Trust Bank, for $10 million. Under the TARP, HIG estimates that it should be eligible for $1.1 billion to $3.4 billion. The stock soared more than 20% on Friday following the news, but HIG has come back down to earth in today's trading.

In fact, the shares have given back nearly all of Friday's gains, falling more than 19% at last check. Technically speaking, HIG has been pressured steadily lower by its declining 10-day and 20-day moving averages since early September. The stock is now hovering just above key technical support in the 9-10 region. This area marks the stock's late October low, and most recently supported HIG on November 13 during a broad-market sell off.

Pervasive Pessimism

As you would expect with a stock that has plunged more than 85% since the beginning of January, investors are heavily bearish toward HIG. On Wall Street, Zacks.com reports that only 5 of the 17 analysts following the shares rate them a "buy" or better. Still, the shares have garnered only 1 "sell" rating, leaving HIG vulnerable to additional downgrades from the brokerage bunch.

Furthermore, Thomson Financial indicates that the average 12-month price target for HIG rests at $31.13 per share - a roughly 204% premium to the stock's current trading range just above the 10 level. If the company's daring plan to become a savings and loan holding company fails to inspire Wall Street analysts, we could see a round of target cuts for HIG. Such a shift in sentiment could apply additional selling pressure to the security.

In the options pits, speculative investors are heavily positioned against HIG. Currently, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.20 indicates that puts easily outnumber calls among near-term options. This ratio also ranks above 82% of all those taken during the past year, meaning that options traders have rarely been more bearishly aligned toward HIG.

That said, data from the International Securities Exchange and the Chicago Board Options Exchange hints that investors might be changing their tune on HIG. During the past 10 trading days on both exchanges, about 1.8 calls have been bought to open for every put purchased. In fact, this ratio of calls to puts is running higher than 73% of all those taken during the past year, indicating that the speculative options crowd may be growing more bullish toward HIG. With the shares once again turning south, this rising optimism has bearish implications from a contrarian perspective.

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