We retain our Outperform recommendation on
The Travelers Companies Inc
) owing to its strong third-quarter 2013 results, which clocked
an 18% positive earnings surprise. The prosperity and
casualty insurer carries a Zacks Rank #2 (Buy).
Why the Reiteration?
Travelers' third-quarter operating net earnings of $2.35 per
share surpassed the Zacks Consensus Estimate by 18% and the
year-ago earnings by about 6%. The outperformance was driven by
improvement in underlying underwriting gains. Lower share count
also boosted the bottom line.
Travelers has been witnessing rising earnings estimates. The
Zacks Consensus Estimate for 2013 rose nearly 8% to $8.81 as 16
of 18 estimates moved north over the last 60 days. 12 of 18
estimates were raised over the same time frame lifting the Zacks
Consensus Estimate by 2.2% to $8.03 for 2014.
In its concerted effort to return more value to its shareholders,
the board of directors of Travelers approved an additional $5.0
billion worth of share repurchases. It also has $759 million
remaining under its earlier authorization. Travelers in total
returned $1.952 billion to its shareholders in the third quarter
of 2013 in the form of share buybacks and dividends.
Travelers has always considered mergers and acquisitions to grow
inorganically. Recently, Travelers acquired The Dominion of
Canada General Insurance Company from E-L Financial Corporation
Limited. The acquisition will strengthen its foothold in Canada.
With solid financial strength and flexibility, we expect
Travelers to pursue strategic acquisitions even in future in
order to ramp up its growth profile.
Travelers is focused on reducing operating expenses and
acquisition costs in order to improve underwriting margins, which
in turn will allow it to come up with a more competitively priced
product. The company's expense reduction initiatives
include the announcement of a plan to reduce certain claim and
other insurance expenses, with the majority of the impact in the
Agency Automobile line of business. This, when fully implemented,
is expected to lead to annualized savings of $140 million in
With respect to the product portfolio, the company remains upbeat
about its new product Quantum 2.0. It expects this lower cost,
lower-priced Auto insurance product to help it improve volumes at
Other Stocks to Consider
Other property and casualty insurers, which look attractive at
current levels are
Aspen Insurance Holdings Ltd
Cincinnati Financial Corp
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ASPEN INS HLDGS (AHL): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
TRAVELERS COS (TRV): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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