Travelers (TRV) Banks on Solid Premiums Despite Cost Concerns

The Travelers Companies, Inc. TRV is well-poised to gain from an increase in new business levels, growth in agency auto and agency homeowners business, and lower non-catastrophe weather-related losses.

The company is well-poised for progress as is evident from its favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Over the past 60 days, Travelers’ 2020 earnings estimates have moved 7% north, reflecting investor optimism.

The company has a decent surprise history. It surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missed the other one), the average beat being 0.25%.

The property and casualty insurer is expected to gain from strong business retention rates, higher surety volumes, increase in new business levels, growth in agency auto and agency homeowners business, positive renewal premium changes, and new business premiums across its Business Insurance, Bond & Specialty Insurance, and Personal Insurance segments.

Lower losses in the automobile product line in Personal Insurance, lower non-catastrophe weather-related losses in Personal Insurance and earned pricing that exceeded loss cost trends in Business Insurance are likely to improve the underlying combined ratio in the near term.

Travelers' liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions in the first nine months of 2020. The company believes that cash flows from operating activities are sufficient to meet the future liquidity requirements of its insurance subsidiaries. At the end of the third quarter, the capital ratios were better than target levels and the liquidity of the holding company was $2.3 billion, which was well above the company’s target level.

Furthermore, the company’s strong cash flows led to disciplined capital management strategies for returning shareholder value via dividend hikes. It returned $218 million of capital to shareholders in the third quarter via dividends. The company’s current dividend yield of 2.5% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.

Moreover, Travelers’ 8.6% return on equity (ROE) is better than the industry average of 5.6%, reflecting its efficiency in utilizing shareholders’ funds.

However, the company has been witnessing rising expenses, which tend to weigh on its margins. Notably, in the third quarter, net margin contracted 50 basis points (bps) year over year sequentially.

Shares of this Zacks Rank #3 (Hold) insurer have gained 1.2% in the past year against the industry’s decline of 2.7%.


Stocks to Consider

Some better-ranked players in the property and casualty industry are Alleghany Y, Fidelity National Financial FNF and First American Financial Corporation FAF. While Alleghany sports a Zacks Rank #1 (Strong Buy) at present, Fidelity National and First American Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany’s bottom line surpassed estimates in two of the last four quarters (missed in the other two), the average beat being 34.08%.
Fidelity National Financial surpassed earnings estimates in each of the last four quarters, the average being 30.48%.
First American Financial surpassed estimates in three of the last four quarters (missed in the other one), the average beat being 16.83%.

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The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
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Alleghany Corporation (Y): Free Stock Analysis Report
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