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Travelers Rides on Premium Growth, Cat Loss Poses a Threat

Zacks Equity Research
·4 min read

The Travelers Companies, Inc. TRV is well-poised to gain from top-line growth, increase in premium and prudent capital deployment.

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.

Shares of this Zacks Rank #3 (Hold) insurer have lost 39.1% in a year’s time against the industry’s increase of 20.1%. Nonetheless, the company’s policy to ramp up its growth profile and capital position should drive shares higher.


Travelers’ return on equity was 9.6% in the trailing 12-month period, higher than the industry average of 6.4%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $10.46, indicating increase of nearly 11.4% from the year-ago reported figure. The expected long-term earnings growth rate is 5.8%.

Factors at Play

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.

Premium growth across the company’s segments has been driving Travelers’ revenues, which witnessed CAGR of 4.17% over the last four years (2015-2019).

Net investment income continues to be another important driver of the company’s top-line growth and has been exhibiting improvement over the last several quarters.  Despite the current low interest rate environment, factor like higher private equity partnership returns will continue to drive net investment income.

Travelers also engages in capital deployment in the form of share buybacks and dividend payouts. Its dividend payments witnessed CAGR of 10.4% over the last five years (2014-2019). In the first quarter, it hiked its dividend by 4%, which marked the 16th straight year of dividend increase.  Its current dividend yield of 3.6% betters the industry average of 0.6%, making it an attractive pick for yield-seeking investors. It now has $1.36 billion remaining under its current share repurchase authorization.

However, Travelers, being a property and casualty insurer is exposed to catastrophe losses. Catastrophe losses surged 72% in the first quarter due to tornado activity in Tennessee and other wind storms and winter storms in several regions of the United States. Such high levels of losses induce underwriting volatility.

Travelers has been witnessing escalating expenses due to higher claims and claim adjustment expenses and general and administrative expenses. Expenses increased at a two-year (2017 -2019) CAGR of 4.25%. Such costs tend to weigh on company’s margins.

Stocks to Consider

Some better-ranked stocks from the same space are The Allstate Corporation ALL, The Progressive Corporation PGR and Palomar Holdings Inc. PLMR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Allstate surpassed estimates in each of the last four quarters, with the average positive surprise being 18.45%.

Progressive surpassed estimates in three of the last four quarters, with the average positive surprise being 15.58%.

Palomar surpassed estimates in two of the last four quarters, with the average positive surprise being 10.93%.

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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
 
The Allstate Corporation (ALL) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
 
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Zacks Investment Research