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Here's Why it is Apt to Hold on to Chubb (CB) Stock Now

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Chubb Limited (CB - Free Report) stands a good chance of leading the property and casualty insurance space, benefiting from compelling products and services. This Zacks Rank #3 (Hold) property and casualty insurer bears immense potential owing to a few good growth drivers.

Growth Projections: The Zacks Consensus Estimate for 2018 earnings per share is pegged at $10.64 on revenues of $30.6 billion, reflecting a year-over-year increase of 46.1% for the bottom line and 2.2% for the top line.

The expected long-term earnings growth rate is pegged at 10%.

Positive Earnings Surprise History: Chubb has surpassed the Zacks Consensus Estimate in the last five quarters with an average beat of 14.6%.

The company is scheduled to report fourth-quarter results on Jan 30. Our proven model shows that Chubb is likely to beat estimates this quarter based on the ideal combination of two strong ingredients: a Zacks Rank of 3, which increases the predictive power of ESP and an Earnings ESP of +2.12%, which makes us confident about a likely positive earnings surprise.

Northbound Estimate Revision: The stock has seen the Zacks Consensus Estimate for 2018 earnings being revised 0.2% upward in the last 60 days.

Price Performance: Shares of Chubb have gained 11.8% in a year’s time, underperforming the industry’s 27.2% rally and the S&P 500 index’s 23.4% registered gain.


 

Underpriced: Looking at the company’s price-to-book ratio — the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next — shares are underpriced at the current level. The company has a trailing 12-month P/B ratio of 1.36, falling significantly below the industry average of 1.67. In fact undervalued shares with growth prospects are the best investment bets. Chubb carries an impressive Value Score of B.  

Growth Drivers in Place

Chubb has remained focused on pursuing growth initiatives that pave the way for long-term growth. Chubb expects both organic and inorganic initiatives undertaken in the United States, Latin America and Asia to drive improvement.

While the company is intensifying focus on its middle-market business prospects, it is also leveraging cyber insurance that has huge room for growth.

Chubb reviews underwriting actions in portfolios that neither meet its risk appetite nor generate decent net premium. Subsequently, the company either terminates or re-insures business to improve its risk/reward profile.

Chubb is on track to achieve annual run-rate integration-related savings of $875 million (up from $800 million, guided earlier) by the end of 2018. This in turn will aid margin expansion.

The US President Donald Trump has signed the Tax Cuts and Jobs Act into law on Dec 22, 2017. This tax reform policy, an overhaul of the tax code after 31 years, lowers the corporate tax burden to 21% from 35%. A reduced tax rate would aid the companies’ bottom line as well as boost margins. The amended tax cut is also expected to make insurers more competitive globally.

The gradually improving rate environment will also continue to drive better investment results. The company anticipates quarterly investment income run rate to remain in the range of $845-$855 million (up from the previously guided range of $830-$840 million).

A robust financial position enables the company to return shareholders’ value through dividend hikes and share buybacks as well as pursue growth initiatives. While the company had $1.3 billion remaining under its buyback authorization, it targets a dividend payout ratio of 30% of its operating earnings. With the dividend hike approved in May 2017, the company made 24 straight yearly hikes. While Chubb’s dividend yield of 1.92% betters the industry average of 0.76%, its payout ratio of 33.3 outperforms the industry mark of 12.4.

Stocks to Consider

Some better-ranked stocks from the insurance industry are CNA Financial Corporation (CNA - Free Report) , Atlas Financial Holdings, Inc. and The Allstate Corporation (ALL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered an average four-quarter beat of 39.87%.

Atlas Financial engages in underwriting commercial automobile insurance policies in the United States. The company pulled off an average four-quarter positive surprise of 60.72%.

Allstate engages in property-liability insurance and life insurance business in the United States as well as Canada. The company came up with an average four-quarter positive surprise of 56.91%.

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