Back to top

Image: Bigstock

Travelers (TRV) Gains Nearly 8% YTD: More Upside Left?

Read MoreHide Full Article

Shares of The Travelers Companies, Inc. (TRV - Free Report) have rallied 7.7% year to date against the  industry’s decrease of 1.3%. The Finance sector and the Zacks S&P 500 composite declined 12.8% and 14.1%, respectively in the same time frame. With a market capitalization of $40 billion, the average volume of shares traded in the last three months was about 1.2 million.

Zacks Investment Research
Image Source: Zacks Investment Research

Strong renewal rate change, high retention, increase in new business and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer. The Zacks Consensus Estimate for 2022 and 2023 has moved 0.7% and 0.1% north, respectively in the past 30 days, reflecting analysts’ optimism.

Travelers is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance. It has a solid track record of beating estimates in the last eight quarters.

Travelers’ ROE for the trailing 12 months is 12.3%, comparing favorably with the industry’s 5.9% and reflecting the company’s efficiency in utilizing shareholders’ fund. TRV targets mid-teens ROE over the long term.

Can TRV Retain the Momentum?

The Zacks Consensus Estimate for Travelers’ 2023 earnings is pegged at $14.68, indicating an increase of 7.9% on 7.5% higher revenues of $39.6 billion. The long-term earnings growth rate is currently pegged at 4%.

Travelers operates a comprehensive portfolio of coverages across nine lines of business that should maintain high levels of retention, improve pricing and increase new business while achieving a positive renewal premium change. An active catastrophe reinsurance program lends support in absorbing losses stemming from catastrophes.

As written pricing outpaces the estimated loss trend, Travelers expects margin expansion in the commercial business segments to continue.

The interest rate environment has already started to improve. The Fed has hiked rate four times this year so far with expectations of a few more. As insurers are beneficiaries of an improving rate, Travelers net investment income is poised to rise.  Higher returns in the non-fixed income portfolio continue to drive investment results. Travelers raised the outlook for fixed income NII including earnings from short-term securities to approximately $470 million after tax in the third quarter and then to $495 million in the fourth quarter.

Travelers remains focused on digitizing the value chain, leveraging cloud technology and leaning into artificial intelligence, among others. TRV stated that scale, profitability and cash flow should help it invest more than $1 billion annually in technology.

Travelers maintains a conservative balance sheet among its peers. It remains focused on keeping the debt-to-capital ratio between 15 and 25 and has been increasing its book value for the past 10 years. TRV had $3.01 billion remaining under repurchase authorization as of Jun 30, 2022.

Travelers has an impressive dividend history, increasing its dividend for the last 18 years. Dividends increased at a compound annual growth rate of 9% over that period. Its current dividend yield of 2.3% is better than the industry average of 0.4%. This makes TRV an attractive pick for yield-seeking investors.

Travelers has a VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. (ACGL - Free Report) , American Financial Group, Inc. (AFG - Free Report) and ProAssurance Corporation (PRA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Arch Capital surpassed earnings estimates in three of the last four quarters and missed in one, the average being 33.64%. In the past year, the insurer has rallied 12.8%.

The Zacks Consensus Estimate for Arch Capital’s 2022 and 2023 earnings has moved 5.7% and 4.9% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.09%. In the past year, American Financial has lost 2.8%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 3.1% and 3.3% north, respectively, in the past 30 days.

The bottom line of ProAssurance surpassed earnings estimates in three of the last four quarters and missed in one, the average being 150.9%. In the past year, the insurer has lost 11.7%.

The Zacks Consensus Estimate for ProAssurance’s 2022 and 2023 earnings has moved 25.9% and 13.9% north, respectively, in the past 30 days.

Published in