Can Travelers’ Stock Rise 30% To Regain Its Pre-Crisis Level Of $135?

by Trefis Team
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Based on a comparison of Travelers’ (NYSE: TRV) stock trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 35% and fully recover to its pre-coronavirus level once fears surrounding the coronavirus outbreak are abated. A detailed comparison of Travelers’ performance vs. the S&P 500 is available in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Travelers Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread, followed by significant negative movement in the stock market. However, the broader markets improved through February 19th after signs of effective containment of the coronavirus spread in China, and hopes of monetary easing by major central banks boosted investor confidence. Between February 19th and April 30th, TRV stock has lost 24% of its value (vs. about 13% decline in the S&P 500). A bulk of the decline came after March 8th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover from a multi-year low of $77 in mid-March to its current level around $100.

Travelers’ Stock Has Fallen Considerably Because The Situation On The Ground Has Changed

Travelers’ stock has suffered as states and countries are on lockdown due to Coronavirus pandemic. This could result in lower premium revenues for the company as business and individuals would be more focused on the short term. Further, the company could also face a significant increase in insurance claims. In addition to this, the insurance giant is heavily dependent on income from investment of insurance premiums for its profitability, which is going to suffer due to lower asset valuations driven by the economic slowdown.

While the company’s result for Q1 saw some growth in revenues, we believe Travelers’ Q2 results will confirm this reality with a drop in investment income and higher policyholder claims. If signs of coronavirus containment aren’t clear by the July Q2 earnings timeframe, it’s likely Travelers’ stock along with the broader market is going to see a continued drop when results are well below expectations. More details about Travelers’ revenues are available in a separate interactive dashboard.

 

But Travelers Stock Witnessed Something Similar During The 2008 Downturn

We see TRV stock declined from levels of around $38 in October 2007 (the pre-crisis peak) to roughly $27 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 28% of its value from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by about 51%.

However, TRV recovered strongly post the 2008 crisis to about $39 in early 2010 – rising by 42% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

 

Will Travelers’ Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that TRV stock has fallen by 24% this time around compared to the 28% decline during the 2008 recession, a likely outcome might be for it to potentially bounce back to around $135 once economic conditions begin to show signs of improving. This marks a full recovery to the level before the coronavirus outbreak gained global momentum. The upside potential for the stock can be attributed to its solid balance sheet and diversified business model.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery timeframes and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes build a complete macro picture and complement our analyses of the coronavirus outbreak’s impact on a diverse set of Travelers’ multinational peers. The complete set of coronavirus impact and timing analyses is available here.

While we believe Travelers’ stock offers a sizable upside to patient investors, we found the recovery potential of MetLife’s stock to be limited in comparison.

 

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