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Why Hold Strategy is Apt for Travelers Ahead of Q2 Results

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Estimates for The Travelers Companies, Inc. (TRV - Free Report) have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 earnings move north by a penny to $10.47.

Travelers provides a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and select international markets. Shares of this Zacks Rank #3 (Hold) property and casualty insurer have gained 3.5% quarter to date, outperforming the industry’s growth of 2.5%.



Travelers carries a favorable VGM Score of B.  Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.

Let’s focus on the factors that make Travelers a stock to retain for attractive returns.

Solid Market Position and Compelling Product Portfolio: Travelers boasts a leadership position in auto and homeowners’ insurance as well as in commercial U.S. property-casualty insurance.

While Quantum Auto 2.0 (low-cost, lower-priced auto insurance product) continues to drive results in Agency Auto and Optima, Travelers’ new strategic Personal Line auto product in Canada gained traction.

With a wide array of product offerings, we believe Travelers will continue to benefit from its strong market position and reap economies of scale.

Sturdy Underwriting Margins: Underlying underwriting margin is a measure to assess the performance of a company or its segments. On the back of inherent strengths, Travelers estimates underlying underwriting margins for the remainder of 2018 across its Business Insurance, Bond & Specialty Insurance and Personal Insurance to be better than the 2017-level.

Improving Investment Income: Owing to a progressing rate environment and higher private equity returns, Travelers has been witnessing higher investment income. Given Fed’s bullish outlook of more hikes, Travelers anticipates about $25-$30 million of higher after-tax net investment income for 2018 on a quarterly basis compared with the tally in 2017.

Effective Capital Deployment: Travelers has a prudent capital management policy in place. The company has hiked its dividend for 14 consecutive. Its dividend payment witnessed a 14-year CAGR of 10% and currently yields 2.4%. Travelers also buys back shares regularly.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $10.47, representing a year-over-year surge of 43.8% on 2.9% higher revenues of $29.5 billion. For 2019, the consensus mark for the bottom line stands at $11.30, translating into nearly 8% year-over-year rise while the same for the top line is projected at $30.6 billion, up 4%.

Travelers has an expected long-term earnings per share growth rate of 12.7%, better than the industry average of 11.5%.

Positive Earnings Surprise History: The company has a decent earnings surprise history, exceeding the Zacks Consensus Estimate in two of the last four quarters. This outperformance underlines the company’s operational efficiency. Its average four-quarter positive surprise stands at 43.50%.

In fact, our proven model conclusively shows that Travelers is likely to beat on earnings this to-be-reported quarter, given its perfect combination of a favorable Zacks Rank #3 (Hold), which increases the predictive power of ESP and an Earnings ESP of +1.55%. A positive ESP is indicative of a likely earnings surprise.

Stocks to Consider

Some better-ranked property and casualty industry stocks are American Financial Group, Inc. (AFG - Free Report) , The Progressive Corporation (PGR - Free Report) and First American Financial Corporation (FAF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Financial Group provides property and casualty insurance products in the United States. It came up with an average four-quarter beat of 26.66%.

Progressive provides personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the United States. It pulled off an average four-quarter positive earnings surprise of 6.23%.

First American Financial provides financial services. It delivered an average four-quarter earnings surprise of 8.33%.

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