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The Travelers Companies (TRV) Down 6.2% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for The Travelers Companies, Inc. TRV. Shares have lost about 6.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is TRV due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Travelers Q4 Earnings Surpass, Revenues Improve Y/Y

The Travelers Companies’ fourth-quarter 2017 core income of $2.28 per share comfortably beat the Zacks Consensus Estimate by a whopping 39%. However, the bottom line deteriorated 28.8% year over year.    

This year-over-year decline in earnings can be attributed to higher catastrophe loss due to California wildfires and a benefit in the prior-year quarter of $126 million pre-tax ($82 million after-tax) from the settlement of a reinsurance dispute. However, higher net favorable prior-year reserve development in the reported quarter partially offset this downside. Also, the bottom line was boosted by share buybacks.

Full-Year Highlights

For 2017, Travelers reported earnings per share of $7.28, beating the Zacks Consensus Estimate by 9.6% but declined 28.1% year over year.

Total revenues of $28.9 billion improved 4.6% year over year.

Behind the Q4 Headlines
 
Total revenues of Travelers rose nearly 3.6% from the year-ago quarter to $7.5 billion. Also, the top line exceeded the Zacks Consensus Estimate of $7.1 billion.

Net written premiums displayed 6% year-over-year increase to $6.4 billion owing to growth in each business segment — Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.
 
Net investment income fell 4.1% year over year to $601 million on higher private equity returns. Lower private equity returns and a decrease in fixed income returns due to lower reinvestment rates available in the market, led to this downside.

Travelers reported an underwriting gain of $266 million, down 54.9% from the year-ago quarter. Combined ratio contracted 550 basis points (bps) year over year to 95.5% due to higher underlying combined ratio and wider catastrophe loss, partially offset by higher net favorable prior-year reserve development.

At the end of the fourth quarter, statutory capital and surplus was $20.4 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 22.5%. This was within the company’s target range of 15-25%. Adjusted book value per share was $83.36, up 3.6% year over year.

Segment Update
    
Travelers’ Business and International Insurance unit reported net written premiums of $3.4 billion, up 4.8% year over year. A continued strong retention, an improved renewal premium change and an increase in new business led to this upside.
 
Combined ratio came in at 88.6%, remaining flat year over year.
 
Segment income of $637 million declined 9.1%, mainly due to lower other income owing to a benefit in the prior-year quarter of $126 million pre-tax ($82 million after-tax) from the settlement of a reinsurance dispute.
 
Bond & Specialty Insurance: Net written premiums rose 4.7% year over year to $606 million, primarily driven by improved domestic surety premiums, a sustained solid retention, higher renewal premium change plus an increase in new business in domestic management liability.
 
Combined ratio deteriorated 1590 bps year over year to 83.7% due to higher underlying combined ratio and lower net favorable prior-year reserve development, partially offset by a favorable development on catastrophe loss that occurred earlier in 2017.
 
Segment income plunged 34.9% year over year to $112 million due to lower underlying underwriting gain and net favorable prior-year reserve development.
 
Personal Insurance: Net written premiums increased 8.3% year over year to about $2.4 billion.
 
Combined ratio declined 1070 bps year over year to 108.7% due to higher catastrophe loss, partially offset by a lower underlying combined ratio and net favorable prior-year reserve development when compared with net unfavorable prior-year reserve development in the year-ago quarter.
 
Segment loss of $50 million compared unfavorably with the prior-year quarter’s segment income of $107 million. Noticeably, higher catastrophe loss — partially offset by a higher underlying underwriting gain and net favorable prior-year reserve development plus compared with the net unfavorable prior-year reserve development in the year-ago quarter — led to this result.
 
Dividend and Share Repurchase Update
 
The property & casualty (P&C) insurer returned total capital of $549 million to shareholders in the reported quarter. This included a buyback of 2.6 million shares worth $351 million in the quarter under review. The company is now left with shares worth $4.6 billion for repurchase under its existing authorization at the end of the fourth quarter.
 
The company’s board announced a quarterly dividend of 72 cents per share in the reported quarter, payable on Mar 30, 2018 to shareholders of record at the close of business as of Mar 9, 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.  In the past month, the consensus estimate has shifted by 10% due to these changes.

The Travelers Companies, Inc. Price and Consensus

 

The Travelers Companies, Inc. Price and Consensus | The Travelers Companies, Inc. Quote

VGM Scores

At this time, TRV has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

TRV has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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