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Chubb Limited (CB) Pre-Q2 Earnings Analysis: Should You Sell?
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Chubb Limited (CB - Free Report) is expected to report an improvement in its top and bottom lines when it reports second-quarter 2024 results on Jul 23, after the closing bell.
The Zacks Consensus Estimate for CB’s second-quarter revenues is pegged at $13.7 billion, indicating 11.7% growth from the year-ago reported figure.
The consensus estimate for earnings is pegged at $5.07 per share. The Zacks Consensus Estimate for CB’s second-quarter earnings has moved down 4.2% in the past 30 days. The estimate suggests year-over-year growth of 3.1%.
Image Source: Zacks Investment Research
Solid Earnings Surprise History
Chubb’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 23.78%.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Chubb this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Chubb has an Earnings ESP of -0.33%.
Zacks Rank: Chubb currently carries a Zacks Rank #4 (Sell).
Factors Likely to Shape Q2 Results
Growth across product lines, strong premium retention, including rate and exposure increases, and solid new business are likely to have aided Chubb Limited’s premiums in the to-be-reported quarter.
The acquisition of Cigna's Asia business, coupled with the strong performance of distribution channels in different countries, is likely to boosted aided life insurance premiums.
The Zacks Consensus Estimate for net premiums earned is pegged at $11.9 billion, indicating an increase of 8.5% from the year-ago reported figure. We expect net premiums earned to be $10 billion.
Growing cash flow is likely to have aided reinvestment at a higher rate, in turn benefiting net investment income. In the second quarter, Chubb anticipates adjusted net investment income between $1.50 billion and $1.52 billion. We expect net investment income to increase 11.4% to $1.23 billion.
Chubb had insured Baltimore’s Francis Scott Key Bridge. Following the bridge collapse, Chubb will have to dish out about $4 billion, per an analyst in a report published in Insurance Journal. The company is likely to have incurred some of the losses in the second quarter, which might have affected underwriting profitability and dragged down the bottom line.
The Zacks Consensus Estimate for combined ratio is pegged at 87.73, indicating a deterioration of 243 basis points from the year-ago reported figure. We estimate underwriting income to be $1.1 billion and the combined ratio to be 81.7.
Expenses are expected to have increased because of higher losses and loss expenses, policy benefits, policy acquisition costs, administrative expenses, interest expense, amortization of purchased intangibles and Cigna integration expenses. We estimate the metric to be $8.8 billion.
However, share buybacks in the to-be-reported quarter are anticipated to have provided a boost to the bottom line.
Price Performance and Valuation
CB shares have gained 16.4% year to date compared with the industry’s growth of 22.3%.
Image Source: Zacks Investment Research
Chubb’s stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.69, higher than the industry average of 1.6.
Image Source: Zacks Investment Research
However, it is still cheaper than other industry players like The Travelers Companies, Inc. (TRV - Free Report) and The Allstate Corporation (ALL - Free Report) , whose shares are trading at a price-to-book multiple of 2.02 and 2.83, respectively.
Investment Thesis
Given the nature of its operations, Chubb has substantial exposure to losses from natural disasters and man-made catastrophes, which induces volatility in its underwriting profitability and weighs on its combined ratio. An extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes and six major hurricanes as predicted by the Colorado State University, will no doubt dilute the bottom line of this insurer. Claims to be paid for the Baltimore bridge collapse will add to its woes. Also, Chubb has been witnessing a noticeable increase in expenses that weigh on margin expansion.
Chubb’s debt level has been increasing since 2017, inducing an increase in interest expense. Its leverage, higher than the industry average, coupled with unfavorable times interest earned, keeps us on guard.
Nonetheless, Chubb’s ability to capitalize on the potential of middle-market businesses, investments in various strategic initiatives, enhanced traditional core packages and specialty products and sufficient cash generation capabilities may help it to limit the downsides.
Conclusion
Coming back to the to-be-reported quarter, the negative impact of the Baltimore bridge mishap and an overactive hurricane season will drag down the bottom line, in turn affecting analyst sentiment. However, a P&C behemoth like Chubb is less likely to disappoint, given its market-leading position, prudent underwriting moves, strong dividend track record and better return on capital.
Image: Bigstock
Chubb Limited (CB) Pre-Q2 Earnings Analysis: Should You Sell?
Chubb Limited (CB - Free Report) is expected to report an improvement in its top and bottom lines when it reports second-quarter 2024 results on Jul 23, after the closing bell.
The Zacks Consensus Estimate for CB’s second-quarter revenues is pegged at $13.7 billion, indicating 11.7% growth from the year-ago reported figure.
The consensus estimate for earnings is pegged at $5.07 per share. The Zacks Consensus Estimate for CB’s second-quarter earnings has moved down 4.2% in the past 30 days. The estimate suggests year-over-year growth of 3.1%.
Image Source: Zacks Investment Research
Solid Earnings Surprise History
Chubb’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 23.78%.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Chubb this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here, as you can see below.
You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Earnings ESP: Chubb has an Earnings ESP of -0.33%.
Zacks Rank: Chubb currently carries a Zacks Rank #4 (Sell).
Factors Likely to Shape Q2 Results
Growth across product lines, strong premium retention, including rate and exposure increases, and solid new business are likely to have aided Chubb Limited’s premiums in the to-be-reported quarter.
The acquisition of Cigna's Asia business, coupled with the strong performance of distribution channels in different countries, is likely to boosted aided life insurance premiums.
The Zacks Consensus Estimate for net premiums earned is pegged at $11.9 billion, indicating an increase of 8.5% from the year-ago reported figure. We expect net premiums earned to be $10 billion.
Growing cash flow is likely to have aided reinvestment at a higher rate, in turn benefiting net investment income. In the second quarter, Chubb anticipates adjusted net investment income between $1.50 billion and $1.52 billion. We expect net investment income to increase 11.4% to $1.23 billion.
Chubb had insured Baltimore’s Francis Scott Key Bridge. Following the bridge collapse, Chubb will have to dish out about $4 billion, per an analyst in a report published in Insurance Journal. The company is likely to have incurred some of the losses in the second quarter, which might have affected underwriting profitability and dragged down the bottom line.
The Zacks Consensus Estimate for combined ratio is pegged at 87.73, indicating a deterioration of 243 basis points from the year-ago reported figure. We estimate underwriting income to be $1.1 billion and the combined ratio to be 81.7.
Expenses are expected to have increased because of higher losses and loss expenses, policy benefits, policy acquisition costs, administrative expenses, interest expense, amortization of purchased intangibles and Cigna integration expenses. We estimate the metric to be $8.8 billion.
However, share buybacks in the to-be-reported quarter are anticipated to have provided a boost to the bottom line.
Price Performance and Valuation
CB shares have gained 16.4% year to date compared with the industry’s growth of 22.3%.
Image Source: Zacks Investment Research
Chubb’s stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.69, higher than the industry average of 1.6.
Image Source: Zacks Investment Research
However, it is still cheaper than other industry players like The Travelers Companies, Inc. (TRV - Free Report) and The Allstate Corporation (ALL - Free Report) , whose shares are trading at a price-to-book multiple of 2.02 and 2.83, respectively.
Investment Thesis
Given the nature of its operations, Chubb has substantial exposure to losses from natural disasters and man-made catastrophes, which induces volatility in its underwriting profitability and weighs on its combined ratio. An extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes and six major hurricanes as predicted by the Colorado State University, will no doubt dilute the bottom line of this insurer. Claims to be paid for the Baltimore bridge collapse will add to its woes. Also, Chubb has been witnessing a noticeable increase in expenses that weigh on margin expansion.
Chubb’s debt level has been increasing since 2017, inducing an increase in interest expense. Its leverage, higher than the industry average, coupled with unfavorable times interest earned, keeps us on guard.
Nonetheless, Chubb’s ability to capitalize on the potential of middle-market businesses, investments in various strategic initiatives, enhanced traditional core packages and specialty products and sufficient cash generation capabilities may help it to limit the downsides.
Conclusion
Coming back to the to-be-reported quarter, the negative impact of the Baltimore bridge mishap and an overactive hurricane season will drag down the bottom line, in turn affecting analyst sentiment. However, a P&C behemoth like Chubb is less likely to disappoint, given its market-leading position, prudent underwriting moves, strong dividend track record and better return on capital.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.