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Results from 'Magnificent Seven' duo show cloud revenue boosted by strong AI demand

Chubb Limited (CB) Banks on Solid Premiums Amid Cost Woes

Zacks Equity Research
·4 min read

Chubb Limited CB is well poised for growth, given its global presence, compelling product portfolio and lower catastrophe losses.

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Over the past 30 days, the company’s 2021 and 2022 earnings estimates have moved 2.3% and 1.1% north, respectively.

Moreover, the company’s 5.9% return on equity (ROE) is better than the industry average of 5.5%, reflecting its efficiency in utilizing shareholders’ funds.

Banking on compelling product portfolio, solid retention, improved pricing, prudent underwriting, and solid global presence, net written premium, one of the important drivers of revenues, are expected to improve in the near term.
The insurer is also focused on cyber insurance and capitalizes on opportunities in the domestic and international middle market business with its core package as well as specialty products.

Though it has exposure to catastrophe loss, Chubb has been able to deliver industry-leading combined ratio. Its combined ratio is about 730 basis points (bps) better than its peers’ average over the past 10 years. Given lower catastrophe events and improved loss ratio, we expect combined ratio to improve in the near term.

The company’s strong underwriting and investment performance produced record operating cash flow of $9.8 billion in 2020. In addition, it continued to maintain a cash and cash equivalent position of $ 1.7 billion, which climbed 13.7% year over year.

This property and casualty insurer raised its dividend at a six-year (2014-2021) CAGR of 6.6%. In 2020, it returned $1.9 billion to shareholders or 58% of earnings, which includes $1.4 billion in dividends and $516 million in share repurchases. Its current dividend yield of 1.9% is better than the industry average of 0.6%, which makes the stock an attractive pick for yield-seeking investors.

Chubb has a decent earnings surprise history. It beat estimates in three of the last four quarters, with the average beat being 5.31%.

Shares of Chubb, carrying a Zacks Rank #3 (Hold), have rallied 14.4% in the past year, outperforming the industry’s increase of 13.5%.



However, we remain concerned about the company’s high expenses incurred, which has been putting pressure on margins. In 2020, net margin contracted 320 bps year over year.

Nevertheless, the Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $11.67 and $12.41, indicating year-over-year increase of nearly 59.6% and 6.3%, respectively. The expected long-term earnings growth rate is 10%, which compares favorably with the industry’s growth rate of 7.3%.

Stocks to Consider

Some better-ranked stocks from the insurance industry include Alleghany Y, Cincinnati Financial Corporation CINF and Arch Capital Group ACGL, each carrying a Zacks Rank #2 (Buy). 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 (while missing in two), with the average surprise being 4.10%.

Arch Capital surpassed estimates in three of the last four quarters (while missing in one), with the average earnings surprise being 32.14%.

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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

Chubb Limited (CB) : Free Stock Analysis Report

Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report

Alleghany Corporation (Y) : Free Stock Analysis Report

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