Travelers Rides on Inorganic Growth, Cat Loss Woe Persists

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.

The company remains focused on mergers and acquisitions. The buyout of Simply Business in August 2017 enabled it to access and caters to the microbusiness market in the United States. Strong financial strength and flexibility should continue to boost strategic buyouts.

The company’s solid balance sheet and steady cash flow aid in efficient capital deployment through dividend hikes and share buybacks. In the first nine months of 2019, the company returned $590 million. It has a record of hiking dividend for 15 straight years at a CAGR of more than 9%. Its current dividend yield of 2.4% betters the industry average of 0.4%, making it an attractive pick for yield-seeking investors.

However, exposure to cat loss induces underwriting volatility. Also, a high debt level that results in increase in interest expense remains a headwind for the company.

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.
Estimates for Travelers have been revised upward over the past seven days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2019 earnings has moved north by 0.1% and the same for 2020 has moved north by 0.2% in the said time frame.

Travelers’s return on equity was 9.1% in the trailing 12-month period, higher than the industry average of 6.9%. 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 11.9% in a year’s time against the industry’s increase of 15.6%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should continue to drive shares higher.

 

The Zacks Consensus Estimate for 2019 and 2020 earnings per share is pegged at $9.48 and $10.84, indicating increase of nearly 6% and 14.3%, respectively from the year-ago reported figures. The expected long-term earnings growth rate is 9.3%. The stock also carries a favorable Value Score of A.

Stocks to Consider

Some better-ranked stocks from the same space are W. R. Berkley Corporation WRB, Fidelity National Financial, Incorporation FNF and Alleghany Corporation Y. While W. R. Berkley and Fidelity National Financial sport a Zacks Rank #1 (Strong Buy), Alleghany carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W. R. Berkley is an insurance holding company. It operates as a commercial lines writer in the United States and internationally. The company came up with four-quarter positive surprise of 32.31% on average.

Fidelity National Financial offers various insurance products in the United States. It offers title insurance, escrow, other title related services and home warranty insurance. The company beat earnings estimates in three of the last four reported quarters, the average being 8.67%.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company came up with four-quarter positive surprise of 25.37% on average.

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