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Why Is Travelers (TRV) Up 6.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Travelers (TRV - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Travelers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Travelers' Q1 Earnings Top on Lower Catastrophe Loss

The Travelers Companies first-quarter 2018 core income of $2.83 per share beat the Zacks Consensus Estimate of $2.76 by 2.5%. The bottom line improved 15% year over year.

This year-over-year improvement in earnings can be largely attributed to lower level of catastrophe loss. Premiums benefited from the new catastrophe reinsurance treaty. The bottom line also benefited from share buybacks.

Behind the Q1 Headlines
 
Travelers’ total revenues rose nearly 4.6% from the year-ago quarter’s figure to $7.6 billion. The top-line figure also outpaced the Zacks Consensus Estimate by 0.5%.

Record gross written premiums of $7.839 billion grew 6%, accounting for growth in all segments.

Net written premiums grew 3% year over year to $7.1 billion owing to growth in each business segment, namely Business and International Insurance, Bond & Specialty Insurance and Personal Insurance and new catastrophe reinsurance treaty.
 
Net investment income dropped 21% year over year to $582 million.

Travelers witnessed underwriting gain of $395 million, up 53% from the year-earlier period. Combined ratio improved 180 basis points (bps) year over year to 93.7% attributable to lower catastrophe losses and a lower underlying combined ratio, partially offset by lower net favorable prior year reserve development.

At the end of the first quarter, statutory capital and surplus were $21.1 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 23.2%. Notably, this was within the company’s target range of 15-25%. Adjusted book value per share was $89.09, up 2% from 2018 end.

Core return on equity was 13%, up 110 basis points year over year.

Segment Update
    
Personal Insurance: Net written premiums of $2.3 billion increased 2% year over year driven by new catastrophe reinsurance treaty.
 
Combined ratio improved 740 bps year over year to 90.1% due to lower catastrophe losses, a lower underlying combined ratio and higher net favorable prior year reserve development.
 
Segment income of $278 million surged 116% from the year-ago quarter’s level driven by lower catastrophe losses, a higher underlying underwriting gain and higher net favorable prior year reserve development.
 
Bond & Specialty Insurance: Net written premiums rose 2% year over year to $587 million, primarily backed by continued strong retention and new business in management liability.
 
Combined ratio deteriorated 640 bps year over year to 81.1% owing to lower net favorable prior year reserve development, higher catastrophe losses and a higher underlying combined ratio.
 
Segment income dropped 20.2% year over year to $138 million on lower net favorable prior year reserve development.
 
Business Insurance: Net written premiums increased 4% year over year to about $4.2 billion, reflecting the new catastrophe reinsurance treaty.
 
Combined ratio deteriorated 60 bps year over year to 98.1%, attributable to net unfavorable prior year reserve development in the current quarter, partially offset by lower catastrophe losses and a lower underlying combined ratio.
 
Segment income of $414 million was down 8.4% year over year.
 
Dividend and Share Repurchase Update
 
The property & casualty insurer returned total capital of $625 million in the reported quarter. It repurchased 3.3 million shares worth $421 million. The company is now left with $2.911 billion worth shares for repurchase under its existing authorization at the end of the first quarter.
 
The company’s board approved a quarterly dividend of 82 cents per share, reflecting 6.5% increase from the prior payout. The dividend is payable on Jun 28, 2019 to shareholders of record at the close of business as of Jun 10, 2019.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Travelers has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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