Shares of The Travelers Companies, Inc. (TRV Quick QuoteTRV - Free Report) have rallied 38.5% in a year, outperforming the industry’s 35% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 32.4% and 31.4%, respectively, in a year. With a market capitalization of $51.5 billion, the average volume of shares traded in the last three months was 1.2 million.

TRV Outperforms Industry, Sector and S&P

Image Source: Zacks Investment Research

The expected long-term earnings growth rate is 11.1%. This Zacks Rank #3 (Hold) property and casualty insurer's bottom line outpaced estimates in two of the trailing four quarters and missed twice, the average surprise being 7.47%.

TRV Trading Above 200-Day Moving Average

Currently priced at $225.97, the stock is trading above the 200-day simple moving average (SMA) of $215.80, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

TRV’s Growth Projection Encourages

The Zacks Consensus Estimate for Travelers’ 2024 earnings per share indicates a year-over-year increase of 30.6%. The consensus estimate for revenues is pegged at $46.12 billion, implying a year-over-year improvement of 11.2%. 

The consensus estimate for 2025 earnings per share and revenues indicates an increase of 17.5% and 7.9%, respectively, from the corresponding 2024 estimates.

Mixed Analyst Sentiment Instills Confidence in TRV

Two of the 14 analysts covering the stock have raised estimates for 2024, and three analysts have raised the same for 2025 over the past 60 days. Three analysts have lowered the estimates for both 2024 and one has lowered the same for 2025.

The consensus estimate for 2024 has moved 0.1% south, while the consensus estimate for 2025 has moved 0.3% north in the past 60 days.

Travelers’ Favorable Return on Capital

Return on equity (ROE) for the trailing 12 months was 15.9%, comparing favorably with the industry’s 7.9%. This reflects its efficiency in utilizing shareholders’ funds.  Sustained operational excellence helped generate double-digit core ROE in nine out of the last 10 years. Travelers aims to generate mid-teens core ROE over time.

Also, return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame. This reflects TRV’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 8.4%, better than the industry average of 6%.

Will TRV’s Rally Stay?

Travelers has been witnessing high levels of retention, improved pricing and increased new business while achieving a positive renewal premium change banking on the strength of a compelling product portfolio of coverages across nine lines of business. 

Going by the progress and continued growth at the profitable agency auto and homeowners business, the company remains optimistic about the trajectory of its personal lines of business. 

Travelers’ commercial businesses continue to perform well on the back of stability in the markets where it operates as well as the execution of its strategies. 

Higher returns from the non-fixed income portfolio have been driving investment income over the last four years amid a low-interest rate environment. Travelers expects after-tax net investment income from the non-fixed income portfolio, including earnings from short-term securities, to be $675 million in the third quarter and $695 million in the fourth quarter.

Solid Balance Sheet of TRV

Travelers has a conservative balance sheet among its peers. The insurer 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 $5.54 billion remaining under repurchase authorization at the end of the second quarter of 2024.

TRV’s Impressive Dividend History

Travelers has been hiking dividends for the last 20 years, banking on a solid capital position. Its dividend yield of 1.8% appears attractive compared with the industry average of 0.2%, making it an attractive pick for yield-seeking investors.

Risks to TRV

Being a P&C insurer, TRV is exposed to catastrophe events, inducing volatility in underwriting profitability. However, the insurer has an active catastrophe reinsurance program, which lends support in absorbing losses.

Also, increasing expenses over the past many years owing to high claims and claim adjustment expenses, as well as general and administrative expenses, have been weighing on margins.

The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 2.07, higher than the industry average of 1.63.

Key Picks

Investors interested in the property and casualty insurance industry may look at some better-ranked players like Arch Capital Group Ltd. (ACGL Quick QuoteACGL - Free Report) , Axis Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) and Cincinnati Financial Corporation (CINF Quick QuoteCINF - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Arch Capital’s 2024 and 2025 earnings implies year-over-year growth of 6.6% and 3.5%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 28.93%. In the past year, shares of ACGL have gained 31.4%.

The Zacks Consensus Estimate for Axis Capital’s 2024 and 2025 earnings implies year-over-year growth of 8.7% and 8.6%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 94.62%. In the past year, shares of AXS have gained 39%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2024 and 2025 earnings implies year-over-year growth of 9.1% and 7%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 27.01%. In the past year, shares of CINF have gained 29.9%.