Back to top

Image: Bigstock

Travelers Stock Trading Near 52-Week High: What Investors Should Know

Read MoreHide Full Article

Shares of The Travelers Companies, Inc. (TRV - Free Report) closed at $241.10 on Monday, near its 52-week high of $24.89, after having gained 15.1% in the past three months. Shares outperformed the industry, the Finance sector as well as the Zacks S&P 500 composite index in the same time frame. TRV shares are trading well above the 50-day moving average, indicating a bullish trend.

TRV is one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance. It has a strong market presence in auto, homeowners’ insurance and commercial U.S. property-casualty insurance with solid inorganic growth. Strong renewal rate change, retention and increase in new business supported by a compelling portfolio and solid capital position should continue to drive earnings.  

Travelers has an impressive VGM Score of B. This style score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and momentum. 

TRV Outperforms Industry, Sector, S&P 500 in 3-Months

Zacks Investment Research
Image Source: Zacks Investment Research

TRV’s Northbound Estimate Revision

Two of the 14 analysts covering the stock have raised estimates for 2024 and 2025 over the past 30 days. The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 0.2% north each in the past 30 days, reflecting analyst optimism.

Travelers’ Favorable Return on Capital

Return on equity (ROE) for the trailing 12 months was 15.9%, comparing favorably with the industry’s 7.8%. This reflects its efficiency in utilizing shareholders’ funds.  Sustained operational excellence helped generate double-digit core ROE in nine out of the last 10 years. Travelers aims to generate mid-teens core ROE over time.

Also, return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame. This reflects TRV’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 8.5%, better than the industry average of 6.1%.

TRV’s Optimistic Growth Projection

The Zacks Consensus Estimate for 2024 earnings stands at $17.19, suggesting an increase of 31% on 11.2% higher revenues of $46.1 billion. The consensus estimate for 2025 earnings stands at $20.16, suggesting an increase of 17.3% on 7.9% higher revenues of $49.8 billion. 

The long-term earnings growth is expected to be 11.2%, better than the industry average of 11%. We expect the 2026 bottom line to witness a three-year CAGR of 21.6%.  

Factors Favoring Travelers

Travelers has been witnessing high levels of retention, improved pricing and increased new business while achieving a positive renewal premium change banking on the strength of a compelling product portfolio of coverages across nine lines of business. 

Going by the progress and continued growth at the profitable agency auto and homeowners business, the company remains optimistic about the trajectory of its personal lines of business. 

Travelers’ commercial businesses continue to perform well on the back of stability in the markets where it operates as well as the execution of its strategies. 

Higher returns from the non-fixed income portfolio have been driving investment income over the last four years amid a low-interest rate environment. Travelers expects after-tax net investment income from the non-fixed income portfolio, including earnings from short-term securities, to be $675 million in the third quarter and $695 million in the fourth quarter.

Solid Balance Sheet of TRV

Travelers has a conservative balance sheet among its peers. The insurer remains focused on keeping the debt-to-capital ratio between 15 and 25 and has been increasing its book value for the past 10 years. TRV had $5.54 billion remaining under repurchase authorization at second-quarter 2024 end. 

TRV’s Impressive Dividend History

Travelers has been hiking dividends for the last 20 years, banking on a solid capital position. Its dividend yield of 1.8% appears attractive compared with the industry average of 0.3%, making it an attractive pick for yield-seeking investors.

Risks to TRV

Being a P&C insurer, TRV is exposed to catastrophe events, inducing volatility in underwriting profitability. However, the insurer has an active catastrophe reinsurance program, which lends support in absorbing losses.

Also, increasing expenses over the past many years owing to high claims and claim adjustment expenses, as well as general and administrative expenses, have been weighing on margins.

Over the last three years, Travelers has been witnessing a rising debt level that has induced higher interest expenses, thereby restricting margin expansion to an extent. As of June 30, 2024, the company’s debt was $8 billion, up 0.01% from 2023-end, with debt-to-total capital of 24.4, comparing unfavorably with the industry average of 18.9. Interest expense increased 8.9% in the first half of 2024. Also, the company’s times interest earned in the trailing 12 months was 12.5, which compared unfavorably with the industry average of 13.8. 

TRV’s Expensive Valuation

The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 2.21, higher than the industry average of 1.61.

Shares of other insurers like The Allstate Corporation (ALL - Free Report) , Chubb Limited (CB - Free Report) and The Progressive Corporation (PGR - Free Report) are also trading at a multiple higher than the industry average.

To Conclude

Travelers is set to grow on a solid market presence, a compelling portfolio, growing commercial businesses, a dynamic investment portfolio, and a solid capital position enabling prudent capital layout.

Given its premium valuation, margin pressure, and unfavorable leverage and times interest earned it is better to adopt a cautious stance for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors who already hold TRV stock should retain it, and new investors can wait for a better entry point given its growth prospects.

Published in