November 9, 2023, $168.56
Business Overview:
- The Travelers Companies, Inc. is a global insurance provider offering various services, including commercial, personal property, and casualty insurance for businesses, government entities, associations, and individuals worldwide. Their offerings include property and liability coverage, workers’ compensation, commercial automobile, general liability insurance, surety and financial liability coverage, and personal automobile and homeowners insurance for individuals.
Maverick Guidance:
- Short-term technical buy/sell recommendation: BUY
- Long-term portfolio recommendation: BUY
- These shares offer solid risk-adjusted total return potential over the next 3 to 5 years.
- A well-covered dividend adds to the stock’s appeal, making it suitable for conservative investors seeking insurance holdings for their portfolios.
Consideration for Maverick Portfolio:
- Appropriate for risk profile score of 10-15. The Conservative Investor prioritizes capital preservation and is risk-averse. The Maverick CONSERVATIVE portfolio is tailored for the Conservative Investor who prioritizes capital preservation and is risk-averse.
- Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
Market Guidance:
- Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Hold
- 10 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 2 Buy, 8 Hold, and zero Sell. (from TipRanks)
- Based on 10 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $187.22, with a high forecast of $217.00 and a low forecast of $172.00. The average price target represents an 11.1% change from the last price of $168.56. (from TipRanks)
- Dividend Yield: $1.00 per share paid quarterly to yield 2.27%.
- Dividend growth for over 15 years. (from TipRanks)
- Technical Sentiment (based on Technical Indicators and Moving Averages):
- Investing.com = Daily (STRONG BUY) and Weekly (BUY)
- TipRanks = Daily (BUY) and Weekly (BUY)
Value Line Guidance:
- Company Financial Strength Rating: A+
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 1 of 5
- Market Timing: 4 of 5
- Technical Rank: 2 of 5
- Beta: 0.95
- Stock’s Price Stability: 95/100
- Price Growth Persistence: 65/100
- Earnings Predictability: 70/100
- Average Annual PE: 15
- Average Annual Sales Growth in the past 5 years: +8.0%
- Average Annual Sales Growth for the next 5 years: +7.0%
- Average Annual Cash Flow Growth in the past 5 years: +5.5%
- Average Annual Cash Flow Growth for the next 5 years: +5.5%
- Average Annual Earnings Growth in the past 5 years: +5.5%
- Average Annual Earnings Growth for the next 5 years: +7.5%
- Average Annual Dividend Growth in the past 5 years: +6.0%
- Average Annual Dividend Growth next 5 years: +4.0%
- Projected Average Annual Dividend Yield in 3 to 5 years: +1.5%
Financial Performance
- 10-year Average Annual Total Return: +9.22% (through Nov 8, 2023)
- EPS:
- 2021: $13.98
- 2022: $12.39
- 2023: e$12.25
- 2024: e$16.80 (from Value Line Quarterly Report)
- Current PE: 18.27 (FinViz)
- Forward PE: 9.72 (FinViz)
- PEG Ratio: 1.23 (FinViz)
- Beta: 0.59 (FinViz)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
3Q2023 (September) (Reported Oct. 18)
- Travelers reported net income of $404 million, with earnings per diluted share at $1.74.
- Core income for the quarter was $454 million, and core earnings per diluted share were $1.95.
- Strong underlying underwriting income of $868 million pre-tax, a +43% increase.
- Consolidated combined ratio of 101.0% and an underlying combined ratio of 90.6%, showing a 1.9-point improvement.
- Catastrophe losses reached $850 million pre-tax, up from $512 million pre-tax in the previous year’s quarter.
- Net unfavorable prior year reserve development of $154 million pre-tax, primarily due to asbestos reserves.
- Record net written premiums of $10.493 billion, a +14% increase from the prior year.
- Strong renewal premium changes in all three segments.
- Net investment income increased by +30% pre-tax, primarily driven by strong fixed-income returns.
- Core income decreased due to higher catastrophe losses and net unfavorable prior-year reserve development, offset by higher underlying underwriting gains and net investment income.
- Net realized investment losses were $65 million pre-tax ($50 million after-tax), compared to $93 million pre-tax ($72 million after-tax) in the prior-year quarter.
2Q2023 (June)
- In the June quarter, Travelers faced challenges due to high catastrophe activity in the insurance market.
- The combined ratio was 106.5%, significantly higher than the previous year’s 98.3%.
- Catastrophes (net of reinsurance) accounted for 16.1% of the combined ratio, up from 9% last year.
- Severe storms and wildfires in the U.S. led to high claims activity.
- Positive factors included solid rate increases and higher net premiums earned.
- Net investment income increased due to higher bond reinvestment rates.
- Optimism for positive earnings comparisons starting in the September quarter as industry catastrophe levels return to normal.
- Strong overall fundamentals make Travelers well-positioned for growth.
- Expectations of high-single-digit earnings growth over the next 3 to 5 years.
- The company’s size and diversification provide a competitive advantage.
- Suitable for investors with an intermediate to longer-term horizon, with potential for short- and long-term gains.
- TRV stock has experienced a recent pullback, creating an attractive entry point for conservative investors, especially those seeking a diversified insurer with a decent dividend yield.
1Q2023 (March)
- Travelers reported strong results for the March quarter, with earnings from operations at $4.11 per share.
- While it represented a moderate decline from the previous year’s exceptionally strong performance, the company had a healthy quarter overall.
- Travelers is expected to increase its earnings per share over the next two years.
- The property/casualty (P/C) insurance market has been on an upturn for some time, and this trend is likely to continue at least through the next year.
- Catastrophes have driven insurers to raise rates during policy renewals, increasing net premiums earned.
- Net investment income has been favorable due to higher bond reinvestment rates, influenced by Federal Reserve interest rate hikes.
- Travelers maintain a conservative investment approach, mostly in bonds.
- The domestic economy’s health is a factor to monitor, as it impacts rate increases’ effectiveness.
- Projected high single-digit earnings growth until 2026-2028, based on a solid economic backdrop.
- A healthy balance sheet provides financial flexibility for dividend increases and stock repurchases.
The 3-to-5-year Operational and Financial Outlook:
- The 3-to-5-year outlook indicates continued growth in revenue and earnings.
- The company’s long-run outlook is optimistic.
Company SWOT Analysis
Internal Strategic Factors:
Strengths
- First Mover Advantage: Pioneering various insurance policies, giving them a competitive edge.
- Strong Reach and Customer Support: 24/7 customer support and local agents ensure accessibility and support.
- Cost Structure: A low-cost structure allows affordable insurance with superior benefits.
- Financial Position: Strong financial position with consecutive profits and accumulated reserves.
- Skilled Labor Force: Investment in skilled and motivated employees.
- High Level of Customer Satisfaction: Strong customer relationships and brand equity.
- Diverse Product Portfolio: Strong market presence.
- Loyal Customer Base: Effective claims management results in a loyal customer base.
- Strong Ratings: Facilitates financial transactions.
- Global Presence: One of the largest insurance companies operating internationally.
- Large Workforce: Over 30,000 employees.
- Performance in New Markets: Expertise in entering and succeeding in new markets.
- Strong Dealer Community: Dealers promote products and invest in sales team training.
- Mergers & Acquisitions: Successful integration of complimentary firms.
- Go To Market Strategies: Effective strategies for product launches.
- Automation: Consistency in product quality and scalability.
- Product Innovation: Successful development of new products.
- Good Returns on Capital Expenditure: Successful execution of projects and generating good returns.
Weaknesses
- Research and Development: Spending less than some industry competitors affects innovation.
- Diversity in the Workforce: Reliance on local workers hinders the integration of external talent.
- High Employee Turnover Rates: Training costs increase due to frequent employee turnover.
- Low Interest: US interest rates impact the profitability of Travelers’ insurance.
- High Dependence on US Markets: Exposes the company to high business risk.
- Limited Brand Presence in Investment Management: Lagging behind global leaders.
- Rigid Organizational Structure: Limits expansion into new product segments.
- Poor Product Demand Forecasting: Results in missed opportunities and high inventory.
- Challenges from New Entrants: Loss of market share in specific categories.
- High Attrition Rate in Workforce: Increased spending on employee training.
- Inefficient Financial Planning: Underutilization of available cash.
- Inadequate Research and Development Investment: Inability to compete with leading industry players in innovation.
- Ineffective Marketing Strategy: Unclear positioning and unique selling proposition.
External Strategic Factors:
Opportunities
- Social Media: Utilize social media for promotion, customer interaction, and after-sale services.
- Transport Industry: Benefit from the growth in the transport sector, leading to increased auto insurance demand.
- Globalization: Expand operations in other countries and enter new markets due to increased globalization.
- Future of Insurance Industry: Predicted global life premium insurance growth and increased demand for life insurance products.
- Future Trends: Shift towards customer-centric insurance products based on personalized services and data.
- US Commercial Real Estate: Positive prospects in the recovering US commercial real estate industry.
- Property and Casualty Insurance: Positive trends leading to increased revenue opportunities.
- Acquisitions: Acquisitions like the JMalucelli deal and Dominion in Canada to increase global market share.
- Stable Free Cash Flow: Invest in new technologies and product segments with stable free cash flow.
- Online Channels: Leverage investments in online platforms to attract new customers.
- Government Green Drive: Procure Travelers products for state and federal government contractors.
- Differentiated Pricing Strategies: Use new technology for improved pricing and service.
- Market Development: Dilute competitors’ advantages and increase competitiveness.
- Environmental Policies: Seize opportunities in new technology and gain market share in the new product category.
- Taxation Policy: Adapt to new taxation policies for increased profitability.
- Economic Uptick: Capture new customers and market share with increased customer spending after economic recovery.
Threats
- Technological Advancements: Competitors’ technological advancements may reduce Travelers’ market share.
- Competition: Ongoing competition can lead to price pressure and potentially lower market share.
- Controversies & Allegations: Past controversies and allegations may affect Travelers’ reputation.
- Fluctuating Interest Rates: Unstable interest rates can impact the financial environment.
- Exchange Rate Fluctuations: Currency exchange rate fluctuations can affect international operations.
- Eurozone Turmoil: Eurozone turmoil makes the US insurance industry vulnerable.
- Growing Competition: Increasing competition in insurance categories erodes market share.
- Political and Regulatory Changes: Changes in tax laws can adversely affect the sector.
- Currency Fluctuations: Exposure to currency fluctuations in various markets worldwide.
- Seasonal Demand: Seasonal demand for highly profitable products may be affected by unlikely events.
- Local Distributors’ Strength: Strong local distributors offer competition with higher margins.
- Rising Raw Materials: Increasing raw material costs threaten profitability.
- Lawsuits: Potential lawsuits in various markets due to differing laws and product standards.
- Environmental Regulations: New environmental regulations under the Paris Agreement can impact product categories.
- Counterfeit Products: Imitation of counterfeit and low-quality products, particularly in emerging markets.
- Rising Labor Costs: Increasing pay levels and rising prices in China can pressure profitability.
Noteworthy Strategic Developments: On Nov. 3, the company announced that it had agreed to acquire Corvus Insurance Holdings, Inc. for approximately $435 million. Founded in 2017, Corvus is an industry-leading cyber insurance managing general underwriter powered by proprietary technology.
FinViz Snapshot: https://finviz.com/screener.ashx?v=341&t=TRV
10-Year Historical Price Chart:
Point & Figure Chart:
https://stockcharts.com/freecharts/pnf.php?c=TRV,PWTAWANRNO[PA][D][F1!3!!!2!20]
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