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Chubb (CB) Surges 25% in a Year: Can It Retain the Momentum?

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Shares of Chubb Limited (CB - Free Report) have rallied 24.7% in a year against the industry’s decrease of 1.2%, the Finance sector’s decline of 8.2% and the Zacks S&P 500 composite’s decrease of 2.2%. With a market capitalization of $87.5 billion, the average volume of shares traded in the last three months was 1.8 million.

Chubb has a decent history of delivering positive surprises in the last five reported quarters.

A compelling portfolio, strong renewal retention, positive rate increases, strategic initiatives to fuel profitability and solid capital position continue to drive CB. The Zacks Consensus Estimate for 2022 and 2023 has moved 2.5% and 2.8% north, respectively in the past 30 days, reflecting analysts’ optimism.  
 

Zacks Investment Research
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Return on equity in the trailing 12 months was 10.3%, better than the industry average of 5.7%. CB aims to achieve a higher long-term ROE.

Can CB Retain the Momentum?

The Zacks Consensus Estimate for 2022 earnings is pegged at $14.92, indicating an increase of 18.8% on 2.3% higher revenues of $42.9 billion. The consensus estimate for 2023 earnings is pegged at $16.55, indicating an increase of 10.9% on 8.9% higher revenues of $46.7 billion. The long-term earnings growth rate is currently pegged at 10%. Chubb has a Growth Score of B

This Zacks Rank #3 (Hold) insurer is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer based on market capitalization. Chubb expects continued growth and margin improvement in 2022, as it capitalizes on favorable underwriting conditions for commercial P&C businesses globally.

Solid commercial businesses, double-digit commercial P&C rate increases, improving underwriting margins, new business and strong renewal retention should continue to drive premiums. Chubb’s focus on capitalizing on the potential of middle-market businesses, both domestic and international, with the traditional core package as well as specialty products bodes well for growth.

While several distribution agreements have expanded its network, thereby strengthening its market presence, investments in various strategic initiatives have paved the way for long-term growth.

The pending acquisition of the life and non-life insurance companies of Cigna Corporation in seven Asia-Pacific markets testifies Chubb’s efforts to expand its presence in the Asia-Pacific region. The addition of Cigna’s business will boost Chubb’s A&H business as well as expand its Asia-based life insurance presence. It will contribute 21% of Chubb’s premium revenues compared with 14% at present. Chubb’s Asia-Pacific portfolio will increase to $7 billion in premiums from $4 billion at present. Chubb expects to realize in excess of $80 million of expense savings and one-time integration costs of about $100 million.

With an increase in interest rate adding to the upside of benefits of a solid investment portfolio coupled with positive operating cash flow, investment income should rise. CB expects the quarterly run rate to be approximately $915-925 million in 2022 and move north thereafter.

Chubb has a strong capital position with sufficient cash generation capabilities and has $1.6 billion remaining under its share buyback authorization.

CB has a VGM Score of B.

Solid Dividend History

Chubb has increased dividends for the last 28 years at an eight-year CAGR (2014-2021) of 6.1%. The dividend yield is 1.6%, better than the industry average of 0.3%. The insurer will propose a dividend hike of 3.7%.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are W.R. Berkley Corporation (WRB - Free Report) , American Financial Group, Inc. (AFG - Free Report) and Cincinnati Financial Corporation (CINF - Free Report) . While W.R. Berkley currently sports a Zacks Rank #1 (Strong Buy), American Financial and Cincinnati Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley stock has increased 27.2%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 6.3% and 6.2% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has rallied 11.2%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past seven days.

The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 32.55%. In the past year, the insurer has rallied 5%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 3.6% and 1.7% north, respectively, in the past 30 days.