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Chubb (CB) Rallies 31% in a Year: Will the Bull Run Continue?

·4 min read

Shares of Chubb Limited CB have rallied 30.7% in a year, outperforming the industry’s increase of 17.1%, the Finance sector’s gain of 3.9% and the Zacks S&P 500 composite’s increase of 6.9%. With a market capitalization of $90.8 billion, the average volume of shares traded in the last three months was 2 million.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

A compelling portfolio, strong renewal retentions, positive rate increases, strategic initiatives to fuel profitability and solid capital position continue to drive CB.

Chubb has a decent history of delivering positive surprises in the last five reported quarters.

Return on equity in the trailing 12 months was 9.4%, better than the industry average of 5.9%. The company is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer based on market capitalization. It aims to achieve a higher long-term ROE.

Can CB Retain the Momentum?

The Zacks Consensus Estimate for 2022 earnings is pegged at $14.57, indicating an increase of 16% on 1.3% higher revenues of $42.5 billion. The consensus estimate for 2023 earnings is pegged at $16.10, indicating an increase of 10.5% on 7.7% higher revenues of $45.7 billion. The long-term earnings growth rate is currently pegged at 10%.

Solid commercial businesses, double-digit commercial P&C rate increases, improving underwriting margins, new business and strong renewal retention should continue to drive premiums for this Zacks Rank #3 (Hold) insurer. Chubb remains focused on capitalizing on the potential of middle-market businesses, both domestic and international, with the traditional core package as well as specialty products.

While several distribution agreements have expanded its network, thereby strengthening its market presence, investments in various strategic initiatives have paved the way for long-term growth.

The pending acquisition of the life and non-life insurance companies of Cigna Corporation in seven Asia-Pacific markets testifies Chubb’s efforts to expand its presence in the Asia-Pacific region. The addition of Cigna’s business will boost Chubb’s A&H business as well as expand its Asia-based life insurance presence. It will contribute 21% of Chubb’s premium revenues compared with 14% at present. Chubb’s Asia-Pacific portfolio will increase to $7 billion in premiums from $4 billion at present. Chubb expects to realize in excess of $80 million of expense savings and one-time integration costs of about $100 million.

With an increase in interest rate adding to the upside of benefits of a solid investment portfolio and positive operating cash flow, investment income should increase. CB continues to expect the quarterly run rate to be approximately $900 million in 2022.

Chubb has a strong capital position with sufficient cash generation capabilities and has $2.6 billion remaining under its share buyback authorization.

CB has a VGM Score of B.

Solid Dividend History

Chubb has increased dividends for the last 28 years at an eight-year CAGR (2014-2021) of 6.1%. The dividend yield is 1.6%, better than the industry average of 0.3%. The insurer announced to propose a dividend hike of 3.7%.

Stocks to Consider

Some better-ranked stocks from the insurance industry are United Fire Group UFCS, Fidelity National Financial FNF and Cincinnati Financial Corporation CINF. While United Fire Group and Fidelity National sport a Zacks Rank #1 (Strong Buy), Cincinnati Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UFCS’ 2022 and 2023 earnings indicates a respective year-over-year increase of 18.3% and 15%. United Fire Group delivered a four-quarter average earnings surprise of 275.45%.

The Zacks Consensus Estimate for FNF’s 2022 earnings has moved 3.3% north in the past seven days. Fidelity National delivered a four-quarter average earnings surprise of 31.73%.

The Zacks Consensus Estimate for CINF’s 2022 and 2023 earnings has moved 5.7% and 5.5% north, respectively, in the past 60 days. Cincinnati Financial delivered a four-quarter average earnings surprise of 38.48%.

Shares of UFCS and CINF have gained 32.4% and 18.6%, respectively, year to date while that of FNF have lost 12.7% in the same time frame.

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Chubb Limited (CB) : Free Stock Analysis Report

Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report

United Fire Group, Inc (UFCS) : Free Stock Analysis Report

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Zacks Investment Research