The Travelers Companies, Inc. TRV is well-poised for growth driven by better pricing, growth in auto and homeowners business, inorganic growth and efficient capital deployment.
Travelers is one of the leading writers of auto and homeowners’ insurance as well as commercial U.S. property-casualty insurance. The company is optimistic about its personal lines of business as evident from the progress and growth at the auto and homeowners business. To increase returns and improve profitability, the company focuses on implementing better pricing and other strategic actions.
It is poised to gain from lower claims in its auto insurance business as more and more Americans choose to stay indoors as a precautionary measure against coronavirus infection.
The company remains focused on mergers and acquisitions. The buyout of Simply Business in August 2017 enabled it to access and cater to the microbusiness market in the United States. Strong financial strength and flexibility should continue to boost strategic buyouts. The company has also witnessed improvement in investment income over the last three years.
Travelers’ conservative balance sheet and steady cash flow aid in prudent capital deployment through dividend hikes and share buybacks. In 2019, the company returned $2.4 billion of capital to shareholders through dividends and share repurchases. It has a record of hiking dividend for 15 straight years with the metric witnessing a five-year CAGR (2014-2019) of 10.40%. Its current dividend yield of 3.2% betters the industry average of 0.5%, making it an attractive pick for yield-seeking investors.
However, exposure to cat loss induces underwriting volatility. The company has been witnessing high level of catastrophe losses with combined ratio deterioration. Also, a high debt level induces higher interest expense, which weighs on margin expansion. The company’s debt-to-equity ratio is 25.2%, higher than the industry average of 24.3%.
The stock has a VGM Score of A. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum. The stock also carries a favorable Value Score of B.
Travelers’ return on equity was 10% in the trailing 12-month period, higher than the industry average of 6.4%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.
Shares of this Zacks Rank #3 (Hold) insurer have lost 25.5% in a year’s time, compared to the industry’s decline of 11.6%. Nevertheless, the company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $10.21 and $10.99, indicating increase of nearly 6.3% and 7.5%, respectively from the year-ago reported figures. The expected long-term earnings growth rate is 8%. It has a favorable Growth Score of A. This style score identifies growth prospects of a company.
Stocks to Consider
A few better-ranked stocks in the property & casualty insurance sector are Donegal Group Incorporation DGICA, First American Financial Corporation FAF and Cincinnati Financial Corporation CINF. While Donegal Group and First American Financial 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.
Donegal Group, First American and Cincinnati Financial surpassed estimates in each of the last four quarters, with the average positive surprise being 271.06%, 17.68% and 17.86% respectively.
Free: Zacks’ Single Best Stock Set to Double
Today you are invited to download our latest Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.
See 5 Stocks Set to Double>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
First American Financial Corporation (FAF) : Free Stock Analysis Report
Donegal Group, Inc. (DGICA) : Free Stock Analysis Report
To read this article on Zacks.com click here.