Travelers’ stock (NYSE: TRV) has gained approximately 15% YTD as compared to the 9% drop in the S&P500 index over the same period. Further, at its current price of $179 per share, it is trading just above its fair value of $178 – Trefis’ estimate for Travelers’ valuation. The insurance giant recently released its fourth-quarter results, outperforming the consensus estimates for earnings and revenues. It reported total revenues of $9 billion – up 7% y-o-y. This could be attributed to a 10% y-o-y growth in net investment income, coupled with a 7% rise in the net earned premiums. While the premiums grew across all the segments, the net investment income benefited from higher income in the non-fixed income investment portfolio. Overall, the adjusted net income increased 2% y-o-y $1.33 billion, leading to a quarterly EPS of $3.37. The profitability numbers suffered a little due to a slight increase in the operating expenses as a % of revenues.
The company’s total revenues increased 9% y-o-y to $34.8 billion in 2021. It was driven by a 6% growth in the total earned premiums and a 36% y-o-y jump in the net investment income (NII). The bond & specialty insurance premiums increased 11% in the year, followed by a 10% rise in personal insurance and a 3% growth in the business insurance segments. Notably, the business insurance premiums contribute close to 45% of the total revenues. Further, the total expenses as a % of revenues decreased from 90% to 87%. Altogether, the above factors translated into a 36% y-o-y increase in the adjusted net income to $3.6 billion.
Although the Federal Reserve has increased the interest rate by a quarter percent this week, it is likely to increase the rates multiple times in FY2022. It will likely benefit the investment yields and, in turn, the NII. Further, recovery in the economy is likely to improve the total premiums. Overall, the Travelers revenues are expected to touch $37 billion in FY2022. Additionally, TRV’s adjusted net income margin is expected to remain around the 2021 levels in the year. This will likely result in an adjusted net income of $3.6 billion and an annual EPS of $14.98. This coupled with a P/E multiple of just below 12x will lead to the valuation of $178.
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|S&P 500 Return||0%||-9%||94%|
|Trefis MS Portfolio Return||-1%||-11%||249%|
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