We have reaffirmed our Outperform recommendation on
The Travelers Companies Inc.
) following strong first-quarter results. The property and
casualty insurer carries a Zacks Rank #2 (Buy).
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On Apr 23, Travelers reported first-quarter earnings per share of
$2.31, surpassing the Zacks Consensus Estimate by 14.9% and
year-ago earnings by 15%. Higher underwriting margins and lower
catastrophe losses more-than-offset lower net investment income
and lower net favorable prior-year reserve development.
The quarter marked the highest quarterly operating income per
share since Travelers' initial public offering in 2002.
Travelers has been witnessing rising earnings estimates. Over the
last 60 days, most of the estimates moved north, pushing the
Zacks Consensus Estimate for 2013 by 6.5% to $7.54. The same for
2014 rose 3.5% to $7.69 over the same period.
As 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 believe that
Travelers will continue to benefit from its strong market
position and reap economies of scale. Over the last eight years,
the company has continuously registered better returns on equity
(ROE) than its peers. Travelers is striving for a ROE in the band
of 14%-16% over the long term.
Travelers maintains a conservative balance sheet among its peers,
which has helped it survive during the financial market downturn
relatively well. Over the last 5 years, the compound annual
growth rate in book value per share has been 9.4%.
Based on the strength of its financial position, recently the
board of directors approved a 9% hike in quarterly dividend. Its
current dividend yield is 2.3%. The company also aggressively
buys back shares to enhance shareholder value.
However, exposure to cat losses and low interest rate environment
dwarf the positives.
Other Stocks to Consider
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Montpelier Re Holdings Ltd
) carry favorable Zacks Rank #1 (Strong Buy) look impressive.