On Apr 1, 2013, shares of The Travelers Companies Inc. (TRV - Analyst Report) hit a 52-week high of $84.72. Previously, the company had reported solid fourth-quarter results with a positive earnings surprise of 500%. Travelers witnessed positive earnings surprises in 3 out of 4 quarters in 2012, with an average beat of 140.74%. Further the company has been delivering positive earnings surprise for 6 out of last 10 quarters.
On Jan 22, Travelers reported fourth quarter 2012 operating earnings of 72 cents, which surpassed the Zacks Consensus Estimate of 12 cents. Net written premiums during the quarter increased 2% year over year to $5.4 billion.
During the fourth quarter Travelers’ top line also improved 2% year over year to $6.5 billion. Results also exceeded the Zacks Consensus Estimate by 3.2%. The improvement in revenues came on the back of higher premiums earned and net investment income.
Travelers has a strong capital management policy. In 2012, the company deployed $1.45 billion to repurchase 22.4 million shares. Further, the company’s dividend yield averaged 2.56% over the last five years, much ahead of the industry yield of 1.08%.
Moreover, the company is the second-largest writer of auto and homeowners’ insurance through independent agents and the sixth-largest writer of commercial U.S. property-casualty insurance.
We expect adequate share buybacks to bolster Travelers’ bottom line going forward. The overall long-term expected earnings growth rate for this stock is 12.48%.
Valuation looks attractive for Travelers. The shares are trading at a discount to the peer group average on a forward price-to-earnings basis. On a price-to-book basis the shares are trading in line with the peer group average. The return on equity of the stock is 9.6%, higher than the peer group average of 9.3%. The 1-year return from the stock is 41.81%, much above S&P 500’s return of 10.91%.
Travelers currently carries a Zacks Rank #2 (Buy). Other stocks in this industry such as Cincinnati Financial Corporation (CINF), EMC Insurance Group Inc. and Arch Capital Group Ltd. (ACGL) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.