Why Has Travelers’ Stock Gained 16% in 2 years?

by Trefis Team
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The Travelers Companies Inc. (NYSE: TRV) is the sixth-largest property and casualty (P&C) insurance company in the U.S. in terms of direct written premiums. Its stock has seen an increase of 16.4% over the last two years from $126 in July 2017 to above $146 in July 2019. Trefis has analyzed the Key Factors Driving Changes in Travelers Stock Price over the last two years in an interactive dashboard, along with our expectations for full-year 2019.

Trefis estimates Travelers’ valuation to be $146 per share (around the current market price) after incorporating changes based on Travelers’ earnings release last month. Additionally, you can see more Trefis data for Insurance companies here.

How has Travelers Stock Price changed over the last two years and what has driven that change?

  • Travelers’ stock has risen from about $126 in July 2017 to over $146 in July 2019
  • The total change in Travelers’ stock price (16.4%) can be understood by evaluating the change in revenue, net income margin, shares outstanding and P/E multiple over this period
    • Total Revenues are expected to increase by 8.9% (2017-2019 expected)
    • Net Income Margin would see an increase of 248 bps (2017-2019 expected)
    • Shares outstanding are expected to drop by 7.1% (2017-2019 expected)
    • P/E Multiple increased by 18.3%
  • Overall, each of these components has moved favorably for Travelers over the last 2 years.

Analysis of change in revenues over 2017-2019

  • Travelers’ revenues grew from $28.9 billion in 2017 to $30.3 billion in 2018, and we expect it to be $31.5 billion in 2019. Gains over this period were driven by growth in Personal Insurance, and Commercial Automobile & Property segments.
  • Travelers has reported Personal Insurance premium of $5.08 billion in first half of 2019, which is 5% higher than the previous year period. Further, it is expected to make $10.5 billion in premiums by year end.
  • Personal Insurance revenues could be divided into two headers – personal automobiles premiums and homeowner & other insurance premiums.
  • Notably, personal automobiles premiums are expected to increase by 6% to $5.4 billion in 2019, followed by a 3% growth in homeowners & other insurance premiums.

Analysis of change in Net Income Margin over 2017-2019

  • Travelers’ Net Income margin grew from 7.1% in 2017 to 8.3% in 2018, and is expected to be 9.6% in 2019.
  • Although total expenses increased by 4% y-o-y in 2018, it was more than offset by 5% growth in revenues. This was further boosted by lower effective tax rate which ultimately led to the net income margin of 8.3% in 2018.
  • We expect revenue growth to exceed expense growth in 2019 too – helping the net income margin for the year
  • Majority of the expenses are incurred under “Claims and claim adjustment expenses” header which has averaged around 60% of revenues for the last 2 years. We expect this header to record a slight reduction in 2019.

Analysis of change in P/E multiple from 12.6 in July 2017 to 14.9 in July 2019

  • Travelers P/E multiple increased to 17.6 in July 2018, before coming down to 14.9 now (using our estimate for Travelers’ EPS for the year)
  • Growth in personal insurance, and commercial automobile & property segment revenues (driven by higher renewable rate of premiums and an increase in retention percentage) have led to an increase in Travelers P/E multiple by 18% over the last two years.

How does Travelers’ P/E multiple compare with its peers?

  • We have considered Travelers, MetLife and Allstate for peer comparison.
  • Travelers recorded highest P/E ratio for July 2018 and 2019 among its peers. Similarly, MetLife’s P/E multiple over the same period was lowest among the three.

Per Trefis, Travelers’ Revenues (shows key revenue components) are expected to cross $31.5 billion in 2019 – leading to an EPS of $11.66 for the year. This EPS figure coupled with a P/E multiple of 12.5x, works out to a price estimate of $146 for Travelers’ stock (shows cash and valuation analysis), which is around the current market price.

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