Why Is Travelers (TRV) Up 4.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Travelers (TRV). Shares have added about 4.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Travelers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Travelers Q3 Earnings Miss, Revenues Beat Estimates
The Travelers Companies reported third-quarter 2023 core income of $1.95 per share, which missed the Zacks Consensus Estimate by 33.4%. The bottom line decreased 11.4% year over year, primarily attributable to higher catastrophe losses and net unfavorable prior-year reserve development. It was partially offset by a higher underlying underwriting gain and net investment income.
Behind Q3 Headlines
Travelers’ total revenues increased 14% from the year-ago quarter to $10.6 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 1.3%.
Net written premiums increased 14% year over year to a record $10.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.4 billion. Net investment income increased 30% year over year to $769 million, primarily due to strong fixed-income returns. The figure was higher than our estimate of $655 million. The Zacks Consensus Estimate was pegged at $724 million.
Catastrophe losses totaled $850 million, wider than $512 million pre-tax in the prior-year quarter. Catastrophe losses primarily resulted from numerous severe wind and hail storms in multiple states. Travelers witnessed an underwriting gain of $868 million, up 43% year over year, driven by record net earned premiums of $9.7 billion and a consolidated underlying combined ratio, which improved by 90.6%. The combined ratio deteriorated 280 basis points (bps) year over year to 101 due to higher catastrophe losses and net unfavorable prior-year reserve development, partially offset by a lower underlying combined ratio.
Core return on equity contracted 100 bps to 6.9%. Adjusted book value per share of $115.78 increased 3.4% year over year. At quarter-end, statutory capital and surplus were $23.267 billion and the debt-to-capital ratio was 28.7%.
Segment Update
Business Insurance: Net written premiums increased 16% year over year to about $5 billion, reflecting strong renewal premium change and retention, as well as higher levels of new business. The increase in net written premiums also included the impact of the company’s quota share reinsurance agreement with the subsidiaries of Fidelis Insurance Holdings Limited effective Jan 1, 2023, which is included in the segment’s international results. It beat our estimate of $4.7 billion. The combined ratio deteriorated 280 bps year over year to 99.1 due to higher net unfavorable prior-year reserve development, partially offset by lower catastrophe losses and a lower underlying combined ratio. Our estimate was 96.8. The Zacks Consensus Estimate was pegged at 97. The segment income of $468 million decreased 0.6% year over year due to higher net unfavorable prior-year reserve development, partially offset by higher net investment income, underlying underwriting gain and lower catastrophe losses. The figure was lower than our estimate of $524.8 million.
Bond & Specialty Insurance: Net written premiums increased 4% year over year to $1 billion, reflecting strong production in surety, as well as strong retention and new business and positive renewal premium change in management liability. The figure was higher than our estimate of $966 million.
The combined ratio deteriorated 110 bps year over year to 73.6, attributable to a higher underlying combined ratio, partially offset by lower catastrophe losses and higher net favorable prior-year reserve development. Our estimate and the Zacks Consensus Estimate were both pegged at 79.
The segment income of $265 million increased 9.5% year over year to higher net investment income, stronger net favorable prior-year reserve development and lower catastrophe losses, partially offset by a lower underlying underwriting gain. The figure was higher than our estimate of $243.3 million.
Personal Insurance: Net written premiums of $4.4 billion increased 14% year over year, reflecting higher pricing in both Domestic Homeowners and Other, Domestic Automobile and International. The figure was higher than our estimate of $3.6 billion. The combined ratio deteriorated 280 bps year over year to 110 due to higher catastrophe losses, partially offset by a lower underlying combined ratio and higher net favorable prior-year reserve development. Our estimate was 108.4. The Zacks Consensus Estimate was pegged at 105. Segment loss was $193 million, wider than $111 million. The increase in segment loss was due to higher catastrophe losses, partially offset by a higher underlying underwriting gain, net investment income and net favorable prior-year reserve development. Our estimate was pegged at a loss of $71.6 million.
Dividend and Share Repurchase Update
This property & casualty insurer bought back 0.6 million shares for $101 million in the reported quarter. The board also approved a quarterly dividend of $1 per share. The dividend will be paid out on Dec 29, 2023, to shareholders of record at the close of business on Dec 8, 2023. TRV had $6.105 billion remaining under authorizations as of Sep 30, 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Travelers has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Travelers is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Progressive (PGR), a stock from the same industry, has gained 1.4%. The company reported its results for the quarter ended September 2023 more than a month ago.
Progressive reported revenues of $15.71 billion in the last reported quarter, representing a year-over-year change of +20.9%. EPS of $2.09 for the same period compares with $0.49 a year ago.
Progressive is expected to post earnings of $2.17 per share for the current quarter, representing a year-over-year change of +44.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.2%.
Progressive has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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