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Should Value Investors Pick Travelers Companies (TRV)?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put The Travelers Companies, Inc. (TRV - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Travelers Companies has a trailing twelve months PE ratio of 11.82, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.77. If we focus on the stock’s long-term PE trend, the current level puts Travelers Companies’ current PE ratio above its midpoint over the past five years, with the number having risen over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Insurance-Property & Casualty industry’s trailing twelve months PE ratio, which stands at 20.05. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Travelers Companies has a forward PE ratio (price relative to this year’s earnings) of just 12.61, so while the stock is not expected to follow a more value-oriented path ahead, Travelers Companies stock will remain undervalued compared to its peers in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Travelers Companies has a P/S ratio of about 1.24. This is much lower than the S&P 500 average, which comes in at 3.24 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Travelers Companies’ P/CF ratio of 4.36 is lower than the Zacks classified Insurance-Property & Casualty industry average of 12.66, which indicates that the stock is undervalued in this respect too.
Broad Value Outlook
In aggregate, Travelers Companies currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Travelers Companies a solid choice for value investors.
What About the Stock Overall?
Though Travelers Companies might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘F’. This gives TRV a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been going down lately. The current quarter has seen one estimate go higher in the past sixty days compared to four lower, while the full year estimate has seen one up and six down in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has fallen by 1.2% in the past two months, while the full year estimate has decreased by 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This slightly negative trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Travelers Companies is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 27% compared to over 250 industries) further underlines the potential of the company overall. In fact, over the past two years, the Zacks Insurance-Property & Casualty industry has clearly outperformed the broader market, as you can see below:
However, a Zacks Rank #3 indicates analysts have some apprehensions about the stock in the immediate future. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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Should Value Investors Pick Travelers Companies (TRV)?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put The Travelers Companies, Inc. (TRV - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Travelers Companies has a trailing twelve months PE ratio of 11.82, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.77. If we focus on the stock’s long-term PE trend, the current level puts Travelers Companies’ current PE ratio above its midpoint over the past five years, with the number having risen over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Insurance-Property & Casualty industry’s trailing twelve months PE ratio, which stands at 20.05. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Travelers Companies has a forward PE ratio (price relative to this year’s earnings) of just 12.61, so while the stock is not expected to follow a more value-oriented path ahead, Travelers Companies stock will remain undervalued compared to its peers in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Travelers Companies has a P/S ratio of about 1.24. This is much lower than the S&P 500 average, which comes in at 3.24 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Travelers Companies’ P/CF ratio of 4.36 is lower than the Zacks classified Insurance-Property & Casualty industry average of 12.66, which indicates that the stock is undervalued in this respect too.
Broad Value Outlook
In aggregate, Travelers Companies currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Travelers Companies a solid choice for value investors.
What About the Stock Overall?
Though Travelers Companies might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘F’. This gives TRV a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been going down lately. The current quarter has seen one estimate go higher in the past sixty days compared to four lower, while the full year estimate has seen one up and six down in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has fallen by 1.2% in the past two months, while the full year estimate has decreased by 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
The Travelers Companies, Inc. Price and Consensus
The Travelers Companies, Inc. Price and Consensus | The Travelers Companies, Inc. Quote
This slightly negative trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Travelers Companies is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 27% compared to over 250 industries) further underlines the potential of the company overall. In fact, over the past two years, the Zacks Insurance-Property & Casualty industry has clearly outperformed the broader market, as you can see below:
However, a Zacks Rank #3 indicates analysts have some apprehensions about the stock in the immediate future. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>