Steady Journey: Unpacking Travelers Companies Inc’s Market Position and Growth Trajectory

Travelers Companies Inc (TRV) is an insurance business that offers property, casualty and surety products, across the US and in select international markets. With a $48.0 billion market cap, it’s far from the biggest stock in the sector, however, it compares favourably enough with the likes of Allstate and AIG.

Travelers has annual sales of around $41.0 billion and a net income of $2.99 billion, and the stock has an institutional ownership ratio of 81.00%. This is one metric where a higher number is a vote of confidence in my opinion.

What does Wall Street think of Travelers?

Travelers is rated as hold by Wall Street analysts, who have a consensus price target of $212.74 a fraction above the current price.

On that basis, it trades on an undemanding forward PE ratio of just 12.00 times, though that is a higher multiple than some notable peers.

Given that Travelers has a mid-table 5-year earnings and revenue growth profile, it’s not immediately clear why the shares trade on that premium rating.

Though it does have a solid-looking track record as far as dividends are concerned.

In fact, according to Barchart.com, it’s paid a dividend since at least 1987.

And between dividends and share buybacks, Travelers returned $1.94 billion to its shareholders in 2023.

How has the Travelers stock price performed?

Travelers stock price has performed well recently, with the shares up by +10.90% year to date, during which time it’s printed 9 consecutive new highs.

That rally, and perhaps the premium valuation, can be explained by the fact Travelers smashed through EPS forecasts when it reported Q4 earnings, in mid-January.

Analysts were looking for earnings of $5.07 per share, Travelers delivered $7.01.

The firm’s CEO called the figures exceptional and attributed the beat to reduced catastrophe losses and robust underwriting gains, as net written premiums grew by +13.0% to $9.84 billion.

The stock’s all-time high is found at $215.21 and it was posted on January 22nd, the day after the stock gapped up by +$12.00 on the earnings announcement.

What’s the outlook for Travelers from here?

Travelers isn’t going to set the world on fire not least because there’s no guarantee that the bumper Q4 earnings weren’t a one-off.

After all, catastrophes are unpredictable black swan events.

That said it posted +13.0 percent growth in its personal insurance arm and +16.0% growth in its business insurance division in 2023.

Added to which, expenses at the firm continue to fall, as both underwriting income and cash flow from operations improve.

Book value per share at Travelers is growing at a compound rate of +7.50% per annum and now stands at $122.90 per share.

That growth has been spurred on by rising investment asset values, which have grown by around +$23.0 billion since 2016, and now stand at +92.0 billion.

Travelers is a stock to buy on a pullback or a breakout

The S&P 500 Financials sector, of which Travelers is part, has rallied by almost +22.0% in the last quarter and has only been outperformed by the poster boys of Information Technology and Communication Services.

To my mind that suggests that a pullback is more likely, but I guess it can’t hurt to set an alert at $216.00, just in case.