The Travelers Companies, Inc. TRV shares are trading at a premium to the Zacks Property and Casualty Insurance industry. Its price-to-book value of 2.01X is higher than the industry average of 1.56X.
The company has a Value Score of A. This style score helps find the most attractive value stocks. Back-tested results have shown that stocks with a Growth Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer better returns.
TRV, one of the leading writers of auto and homeowners’ insurance plus commercial U.S. property-casualty insurance, has a market capitalization of $55.7 billion. The average volume of shares traded in the last three months was 1.2 million.
Image Source: Zacks Investment Research
Shares of other insurers like The Allstate Corporation ALL, Chubb Limited CB and The Progressive Corporation PGR are also trading at a multiple higher than the industry average.
TRV shares have underperformed the industry year to date but outperformed the Finance sector as well as the Zacks S&P 500 composite index in the same time frame .
TRV vs Industry, Sector & S&P 500 Year to Date
Image Source: Zacks Investment Research
TRV shares are trading well above the 50-day moving average, indicating a bullish trend.
Travelers’ Favorable Return on Capital
Return on equity (ROE) for the trailing 12 months was 17.7%, comparing favorably with the industry’s 7.6%. 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 9.9%, better than the industry average of 5.8%.
Optimistic Analyst Sentiment Instills Confidence in TRV
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 1 cent north each in the past seven days, reflecting analyst optimism.
The Zacks Consensus Estimate for 2024 earnings stands at $18.84, suggesting an increase of 43.5% on 12.1% higher revenues of $46.5 billion. The consensus estimate for 2025 earnings stands at $20.54, suggesting an increase of 9% on 7.4% higher revenues of $49.9 billion.
The long-term earnings growth rate is expected to be 11.2%, in line with the industry average. The company has a Growth Score of B.
Factors Favoring Travelers
Travelers’ solid retention, better pricing, increased new business and positive renewal premium change poise it well for growth. The insurer’s compelling product portfolio consists of coverages across nine lines of business.
The company’s personal lines of business should benefit from continued growth at the profitable agency auto and homeowners business while the commercial businesses is set to grow on the successful execution of growth strategies and stability in the markets where it operates.
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 $700 million after tax in the fourth quarter. It estimates NII, including earnings from short-term securities, to be $2.9 billion in 2025, with $700 million in the first quarter of 2025 and growing to approximately $760 million by the fourth quarter.
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 $5.3 billion remaining under repurchase authorization at third-quarter 2024 end.
Average Target Price for TRV Suggests a Solid Upside
Based on short-term price targets offered by 22 analysts, the Zacks average price target is $267.18 per share. The average suggests a potential 9% upside from Wednesday’s closing price.
To Conclude
Travelers 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 been hiking dividends for the last 20 years. 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.
The company has an impressive VGM Score of A. This style score rates stocks on their combined weighted styles, helping to identify those with the most attractive value, best growth and momentum.
Thus, despite its premium valuation, this Zacks Rank #2 stock remains one of investors’ favorites for addition to their portfolio.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
Chubb Limited (CB) : Free Stock Analysis Report
The Allstate Corporation (ALL) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
