The Travelers Companies, Inc. (TRV - Free Report) is well-poised to gain from positive renewal premium changes, growing new business premiums and lower non-catastrophe losses.
The stock has a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.
The stock has seen its estimates for 2020 and 2021 move up nearly 0.8% and 2.2%, respectively in the past 60 days, reflecting investor optimism.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $10.68, indicating year-over-year increase of nearly 25.2%. The expected long-term earnings growth rate is 6.7%.
Factors Driving Travelers
Premium growth across the company’s Business Insurance, Bond & Specialty Insurance, Personal Insurance segments has been driving Travelers’ revenues, which witnessed CAGR of 4.2% over the last four years (2015-2019). Strong business retention rates, higher surety volumes, increase in new business levels, growth in agency auto and agency homeowners business, positive renewal premium changes, and new business premiums are expected to drive premiums going forward. In Business Insurance, the company achieved renewal rate change of 7.4% in the second quarter, the highest level since 2013.
Net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several quarters. It grew at a two-year CAGR (2017 – 2019) of 1.5%. Despite the current low interest rate environment, factors like higher average level of fixed maturity investments and higher long-term interest rates will continue to drive net investment income.
Improvements in fee income over the years also contributed to revenue growth of the company. Higher claim volume under administration associated with service businesses of National Accounts are expected to fuel the fee income in the future.
The property and casualty insurer has been witnessing substantial improvement in the underlying combined ratio over the past few years. We believe lower non-catastrophe weather-related losses and lower automobile losses net of premium refunds are likely to improve the metric in the near term.
Travelers also engages in capital deployment in the form of share buybacks and dividend payouts. Its dividend payments witnessed CAGR of 9.2% over the last six years (2014-2020). Its recent dividend hike marked the 16th straight year of dividend increase. Its current dividend yield of 3% betters the industry average of 0.4%, making it an attractive pick for yield-seeking investors. It now has $1.36 billion of capacity remaining under its share repurchase authorization.
Furthermore, return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. Its trailing twelve months ROE of 7.2% betters the industry average of 6.2%.
Shares of this Zacks Rank #3 (Hold) insurer have lost 23.8% in the past year compared with the industry’s decline of 2.6%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should drive shares higher.
Stocks to Consider
Investors interested in property and casualty industry may look at Donegal Group Incorporation (DGICA - Free Report) , Fidelity National Financial Inc., (FNF - Free Report) and The Allstate Corporation (ALL - Free Report) . While Donegal Group and Fidelity National carry a Zacks Rank #1 (Strong Buy), Allstate carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal surpassed estimates in each of the last four quarters, with the average being 86.44%.
Fidelity National surpassed estimates in each of the last four quarters, with the average being 32.13%.
Allstate surpassed estimates in each of the last four quarters, with the average being 25.24%.
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