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Here's Why You Should Hold Travelers (TRV) in Your Portfolio

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The Travelers Companies, Inc. (TRV - Free Report) remains well poised for growth on positive renewal premium changes, new business premiums and effective capital deployment.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved 0.1% and 0.4% north, respectively, in the past seven days. This should instill investors' confidence in the stock.

Earnings Surprise History

Travelers has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 31.4%.

Zacks Rank & Price Performance

Travelers currently carries a Zacks Rank #3 (Hold). Year to date, the stock has rallied 11.2% compared with the industry’s increase of 3.1%.

Zacks Investment Research
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Style Score

Travelers has a favorable VGM Score of A. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Return on Equity (ROE)

Travelers’s ROE for the trailing 12 months is 13.8%, up 410 basis points year over year and betters the industry average of 5.7%, reflecting efficiency in utilizing shareholders’ fund. 

Business Tailwinds

The property and casualty insurer remains well poised for growth on the back of solid performance across its Business Insurance, Personal Insurance and Bond & Specialty Insurance segments. Strong retention rates, positive renewal premium changes and new business premiums are expected to drive the performance of the segments.

The first-quarter expense ratio improved in all three segments. Significant investments in strategic initiatives, along with the combination of a strategic focus on expense discipline and strong top-line growth are likely to lower the expense ratio. Travelers projects an expense ratio for 2022 of around 29.5% and aims for an expense ratio of around 29% in the next two years.

With the recent increase in interest rates, Travelers raised the outlook for fixed income net investment income. The metric is estimated to increase nearly $440 million after-tax in the second quarter of 2022, around $460 million in the third quarter and $480 million in the fourth quarter. Net investment income is likely to gain from higher private equity partnership returns.

With respect to reinsurance, Travelers has renewed the underlying property aggregate catastrophe XOL treaty for 2022. This will provide aggregate coverage of $225 million, part of $500 million of losses above an aggregate retention of $2 billion.

The insurer’s operating cash flows remained strong and ended the first quarter with holding company liquidity of around $1.5 billion. The ratio of debt-to-capital excluding after-tax net unrealized investment gains (losses) included in shareholders’ equity was 21.3%, which was within the target range of 15% to 25%.

By virtue of its strong financial position, Travelers increased its dividend by 6% in April 2022, marking the 18th consecutive year of dividend increase. Its current dividend yield of 2% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors. Currently, it has $3.505 billion remaining under its share repurchase authorization.

The Zacks Consensus Estimate for Travelers’ 2023 earnings per share is pegged at $14.59, indicating a year-over-year increase of 8.1%.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance sector are RLI Corp. (RLI - Free Report) , W.R. Berkley Corporation (WRB - Free Report) and HCI Group, Inc. (HCI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RLI has a solid track record of beating earnings estimates in each of the last seven quarters. In the past year, RLI stock has increased 12.1%.

The Zacks Consensus Estimate for RLI’s 2022 and 2023 earnings per share is pegged at $4.35 and $4.45, indicating year-over-year increases of 12.4% and 2.3%, respectively.

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's stock has increased 34.7%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 4.9% and 4.1% north, respectively, in the past 30 days.

The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 15.7%.

The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 280.9% and 75%, respectively.

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