Travelers (NYSE: TRV) is scheduled to report its fiscal Q2 2021 results on Tuesday, July 20. We expect Travelers to beat the consensus estimates for revenues and earnings. The insurance giant managed to surpass the revenues and earnings estimates in the last quarter, mainly driven by higher net investment income. The net investment income benefited from growth in investable assets, partially offset by interest rate headwinds. Further, the company’s insurance premiums slightly improved in the quarter due to some recovery in bond & specialty, and personal insurance segments, despite lower revenues in the business insurance business. We expect growth in the premiums and net investment income to drive the second-quarter results.
Our forecast indicates that Travelers’ valuation is around $162 per share, which is 5% above the current market price of around $155. Look at our interactive dashboard analysis on Travelers’ pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to beat the consensus estimates in Q2
Trefis estimates Travelers’ fiscal Q2 2021 revenues to be around $8.18 billion, 6% above the $7.72 billion consensus estimate. Its revenues of $32 billion in 2020 were just ahead of the 2019 figure, mainly due to slower growth in premiums and a 10% y-o-y decline in the net investment income. While the net investment income suffered in 2020 due to the lower interest rate environment, total premiums saw negative growth due to a shift in customer focus from long-term to short-term survivability, as a result of the Covid-19 crisis. That said, the premiums and net investment income saw some recovery over the recent quarters, including a 15% y-o-y jump in the net investment income in Q1. The premiums have mainly benefited from some improvement in the personal and Bond & Specialty insurance streams. We expect the same trend to continue in the second quarter of FY2021.
The total premiums are likely to improve in FY2021, with a recovery in the economic conditions. Further, net interest income will likely benefit from growth in investable assets, partially offset by the low-interest rates. The interest rates are unlikely to see an immediate recovery to the pre-Covid-19 levels. Overall, the TRV’s revenues are likely to remain around $33.4 billion in FY2021. Our dashboard on Travelers’ revenues offers more details on the company’s segments.
2) EPS likely to top the consensus estimates
Travelers’ Q2 2021 adjusted earnings per share (EPS) is expected to be $2.55 per Trefis analysis, almost 9% above the consensus estimate of $2.33. The company’s adjusted net income grew 3% y-o-y to $2.7 billion in 2020, improving the EPS figure from $9.92 to $10.52. This could be attributed to a slight decrease in total claims & expenses as a % of revenues. The same was evident in the first quarter results, too, with the company reporting a 22% jump in adjusted net income due to lower operating expenses as a % of revenues. We expect the same momentum to drive the second-quarter results.
Travelers’ revenues are expected to grow by 4% y-o-y in FY2021. Further, the net income margin is likely to see a marginal increase in the year. Overall, it will enable TRV to report an EPS of around $11.65.
(3) Stock price estimate 5% more than the current market price
Going by our Travelers valuation, with an EPS estimate of around $11.65 and a P/E multiple of around 14x in fiscal 2021, this translates into a price of $162, which is 6% above the current market price of around $155.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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