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Chubb (CB) Stock Lags Industry YTD: Time to Hold or Fold?
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Shares of Chubb Limited (CB - Free Report) have gained 16.1% year to date, underperforming the industry’s 20% growth and the S&P 500 composite’s rise of 17%. Chubb is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer based on its market capitalization of $104.9 billion.
By nature of its operations, Chubb has substantial exposure to losses from natural disasters and man-made catastrophes, which have been inducing volatility in its underwriting profitability and weighing on its combined ratio. Chubb had insured Baltimore’s Francis Scott Key Bridge. Following the Baltimore bridge collapse, Chubb has to dish out about $4 billion per an analyst in a report published in Insurance Journal. The report states that this insurer has braced up to pay the first installment of $350 million.
Moreover, Colorado State University has already predicted an extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes. Also, Chubb has been witnessing a noticeable increase in expenses that weigh on margin expansion.
Chubb Underperforms Industry & S&P YTD
Image Source: Zacks Investment Research
Mixed Analyst Sentiment
Three of the 10 analysts covering the stock have lowered estimates for 2024 over the last seven days, while none raised the same for 2024 and 2025. Only two analysts raised their estimates in the past 60 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 0.5% and 0.1% south in the last seven days.
Image Source: Zacks Investment Research
Though the bottom-line estimate for 2024 implies a 7.1% year-over-year decline, the same for 2025 suggests a 9.6% increase.
Shares Overpriced
Chubb’s stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.63, higher than the industry average of 1.54. However, we believe given Chubb’s dominant market presence, compelling product offering, impressive dividend history and strong return on capital, a premium valuation is quite justified for this stock.
Image Source: Zacks Investment Research
What’s Working in Favor of Chubb?
Chubb remains focused on capitalizing on the potential of middle-market businesses (both domestic and international) and enhancing traditional core packages and specialty products. This apart, the insurer has also been making investments in various strategic initiatives. It is focusing on cyber insurance that has immense room for growth. All these strategic initiatives pave the way for long-term growth.
The U.S. small commercial business has gained momentum. Management expects premiums in this business to reach multi-billion-dollar levels in the next three to five years.
Its inorganic story is impressive. Chubb’s strategic mergers and acquisitions diversify its portfolio, add capabilities and synergies as well as expand its geographic footprint. The addition of Cigna’s life and non-life insurance companies and the acquisition of a higher stake in Huatai Group, among others, bear testimony to the strategy.
Chubb boasts a strong capital position, with sufficient cash generation capabilities and a conservative level of leverage. Its improving operating cash flow, coupled with a better rate environment, drives investment income. Management estimates investment income to be $1.45 billion in the second quarter of 2024 and grow thereafter.
CB’s Impressive Dividend History
Banking on operational expertise, Chubb boasts an impressive dividend history. It has increased dividends for 31 straight years. CB has a dividend yield of 1.4%, better than the industry average of 0.3%. This makes the stock an attractive pick for yield-seeking investors.
Image Source: Zacks Investment Research
The Travelers Companies, Inc. (TRV - Free Report) and The Allstate Corporation (ALL - Free Report) , two other property and casualty insurers, also have a solid dividend history and industry-leading dividend yield. While TRV’s has a dividend yield of 1.97%, ALL’s dividend yield is 2.21%.
Chubb’s Return on Capital
Return on equity in the trailing 12 months was 16.3%, better than the industry average of 7.8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Image Source: Zacks Investment Research
Also, return on invested capital (ROIC) has been increasing over the last few quarters amid capital investments made over the same time frame. This reflects CB’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 10.5%, better than the industry average of 5.9%.
Image Source: Zacks Investment Research
Conclusion
There’s no doubt that the negative impact of the Baltimore bridge mishap and an overactive hurricane season will drag down the bottom line of this Zacks Rank #4 (Sell) in the near term.
Nonetheless, Chubb’s market-leading position, strategic initiatives that pave the way for long-term growth, solid capital position, strong dividend track record and better return on capital are proof enough that investors need not worry about the near-term headwinds. Therefore, giving up on this P&C behemoth in light of the recent setbacks may not be a prudent move.
Image: Bigstock
Chubb (CB) Stock Lags Industry YTD: Time to Hold or Fold?
Shares of Chubb Limited (CB - Free Report) have gained 16.1% year to date, underperforming the industry’s 20% growth and the S&P 500 composite’s rise of 17%. Chubb is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer based on its market capitalization of $104.9 billion.
By nature of its operations, Chubb has substantial exposure to losses from natural disasters and man-made catastrophes, which have been inducing volatility in its underwriting profitability and weighing on its combined ratio. Chubb had insured Baltimore’s Francis Scott Key Bridge. Following the Baltimore bridge collapse, Chubb has to dish out about $4 billion per an analyst in a report published in Insurance Journal. The report states that this insurer has braced up to pay the first installment of $350 million.
Moreover, Colorado State University has already predicted an extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes. Also, Chubb has been witnessing a noticeable increase in expenses that weigh on margin expansion.
Chubb Underperforms Industry & S&P YTD
Image Source: Zacks Investment Research
Mixed Analyst Sentiment
Three of the 10 analysts covering the stock have lowered estimates for 2024 over the last seven days, while none raised the same for 2024 and 2025. Only two analysts raised their estimates in the past 60 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 0.5% and 0.1% south in the last seven days.
Image Source: Zacks Investment Research
Though the bottom-line estimate for 2024 implies a 7.1% year-over-year decline, the same for 2025 suggests a 9.6% increase.
Shares Overpriced
Chubb’s stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.63, higher than the industry average of 1.54. However, we believe given Chubb’s dominant market presence, compelling product offering, impressive dividend history and strong return on capital, a premium valuation is quite justified for this stock.
Image Source: Zacks Investment Research
What’s Working in Favor of Chubb?
Chubb remains focused on capitalizing on the potential of middle-market businesses (both domestic and international) and enhancing traditional core packages and specialty products. This apart, the insurer has also been making investments in various strategic initiatives. It is focusing on cyber insurance that has immense room for growth. All these strategic initiatives pave the way for long-term growth.
The U.S. small commercial business has gained momentum. Management expects premiums in this business to reach multi-billion-dollar levels in the next three to five years.
Its inorganic story is impressive. Chubb’s strategic mergers and acquisitions diversify its portfolio, add capabilities and synergies as well as expand its geographic footprint. The addition of Cigna’s life and non-life insurance companies and the acquisition of a higher stake in Huatai Group, among others, bear testimony to the strategy.
Chubb boasts a strong capital position, with sufficient cash generation capabilities and a conservative level of leverage. Its improving operating cash flow, coupled with a better rate environment, drives investment income. Management estimates investment income to be $1.45 billion in the second quarter of 2024 and grow thereafter.
CB’s Impressive Dividend History
Banking on operational expertise, Chubb boasts an impressive dividend history. It has increased dividends for 31 straight years. CB has a dividend yield of 1.4%, better than the industry average of 0.3%. This makes the stock an attractive pick for yield-seeking investors.
Image Source: Zacks Investment Research
The Travelers Companies, Inc. (TRV - Free Report) and The Allstate Corporation (ALL - Free Report) , two other property and casualty insurers, also have a solid dividend history and industry-leading dividend yield. While TRV’s has a dividend yield of 1.97%, ALL’s dividend yield is 2.21%.
Chubb’s Return on Capital
Return on equity in the trailing 12 months was 16.3%, better than the industry average of 7.8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Image Source: Zacks Investment Research
Also, return on invested capital (ROIC) has been increasing over the last few quarters amid capital investments made over the same time frame. This reflects CB’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 10.5%, better than the industry average of 5.9%.
Image Source: Zacks Investment Research
Conclusion
There’s no doubt that the negative impact of the Baltimore bridge mishap and an overactive hurricane season will drag down the bottom line of this Zacks Rank #4 (Sell) in the near term.
Nonetheless, Chubb’s market-leading position, strategic initiatives that pave the way for long-term growth, solid capital position, strong dividend track record and better return on capital are proof enough that investors need not worry about the near-term headwinds. Therefore, giving up on this P&C behemoth in light of the recent setbacks may not be a prudent move.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.