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Travelers (TRV) to Gain From Solid Segmental Performance

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Zacks Equity Research
·4 min read
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The Travelers Companies, Inc. TRV has been gaining momentum from its solid performance in the Personal Insurance and the Business Insurance segments as well as sufficient liquidity.

The stock carries a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

The stock has seen its estimates for 2021 and 2022 move up nearly 10.8% and 8.6%, respectively, in the past 60 days that reflects investors’ optimism.

The company has been effectively improving its return on equity (ROE) over the years. ROE of 9.8% in the trailing 12 months was better than the industry average of 5.6%. Its core return on equity expanded 40 basis points year over year in 2020. This reflects the company’s efficiency in utilizing shareholders’ fund.

The Personal Insurance segment of Travelers is well poised to gain from lower frequency of automobile losses as well as the benefit to underwriting income from higher business volumes, continued strong retention as well as higher levels of new business in agency auto and agency homeowners, and strong renewal premium change in agency homeowners business.

Given higher net favorable prior year reserve development, a higher underlying underwriting gain, lower catastrophe losses and higher net investment income, strong retention and higher renewal rate changes and increase in new business volume, the Business Insurance segment of the insurer is expected to gain in the long term.

Its operating cash flows remained strong and capital ratios were at or better than target levels in 2020. It ended the year with liquidity of approximately $1.7 billion, also, its operating cash flow exceeded $6 billion for the first time, which reflected the benefit of continued increases in premium volume. Such strong liquidity provides flexibility to make important investments in business, return excess capital to shareholders and grow investment portfolio.

This property and casualty insurer is committed toward enhancing shareholders’ value banking on its robust capital position and raised its dividend at a seven-year (2014-2021) CAGR of 7.9%. Its current dividend yield of 2.9% is better than the industry average of 0.6%, which makes the stock an attractive pick for yield-seeking investors. In 2020, it returned $1.5 billion of capital to shareholders through dividends and share repurchases. Currently, it has $1.16 billion remaining under its share repurchase authorization.

Moreover, it has an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investing space.

It has a decent earnings surprise history too. Its earnings beat estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 15.47%, on average.

Moreover, shares of this Zacks Rank #2 (Buy) property and casualty insurer have rallied 19.3% in the past year compared with the industry’s increase of 12.7%.


The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $11.59 and $12.4, indicating year-over-year increase of nearly 10.5% and 7.2%, respectively.

Other Stocks to Consider

Some other top-ranked stocks in the insurance space include Alleghany Y, Cincinnati Financial Corporation CINF and First American Financial Corporation FAF, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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%.

Cincinnati Financial surpassed earnings estimates in two of the last four quarters, with the average surprise being 4.10%.

First American Financial’s bottom line surpassed estimates in three of the last four quarters and missed in one, the average beat being 15.86%.

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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

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Zacks Investment Research