Travelers Stock Posted Mixed Results In Q1, What To Expect Next?

+11.08%
Upside
167
Market
185
Trefis
TRV: The Travelers Companies logo
TRV
The Travelers Companies

Travelers’ stock (NYSE: TRV) has gained roughly 14% YTD, as compared to the 13% drop in the S&P500 index over the same period. Further, at its current price of $178 per share, it has an upside potential of 4% to its fair value of $185 – Trefis’ estimate for Travelers’ valuationThe insurance giant recently released its first-quarter results, beating the consensus estimates for earnings but slightly missing the revenue expectations. It reported total revenues of $8.8 billion – up 6% y-o-y, primarily because of a 9% rise in the net earned premiums. This was due to a 10% increase in the personal insurance segment, followed by a 7% growth in the business insurance division. While the premiums drove growth in the quarter, it was partially offset by a 9% drop in the net investment income (NII). The NII suffered due to a year-on-year decrease in income from the non-fixed income investment portfolio driven by lower private equity partnership returns. Overall, the net income improved 39% y-o-y to $1 billion partly due to the revenue growth and partly due to lower total claims & expenses as a % of revenues. 

The company’s total revenues improved 9% y-o-y to $34.8 billion in FY 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). Notably, the premiums grew in all the three divisions – personal, bond & specialty, and business insurance. The NII mainly benefited from higher private equity partnership returns, partially offset by a lower income from fixed maturity investments and short-term securities. In addition to the growth in the top line, the expense figure as a % of revenues declined from 90% to 87%. It resulted in a 36% y-o-y gain in the adjusted net income to $3.6 billion.

The Federal Reserve has already initiated the rate hike process in FY2022. Notably, it has increased the benchmark interest rates twice, first by a quarter percentage point followed by a 0.5 percentage point hike. Further, the central bank is anticipated to raise the rates multiple times in the year. This move will likely help the NII of Travelers. On a similar note, total premiums are likely to continue their growth trajectory over the subsequent quarters. All in all, the Travelers’ revenues are forecast to touch $37.1 billion in FY2022. Additionally, TRV’s adjusted net income margin is likely to be around 8.5%, leading to an adjusted net income of $3.2 billion and an annual EPS of $13.17. This coupled with a P/E multiple of 14x will lead to the valuation of $185.

Relevant Articles
  1. Is Travelers Stock Fairly Priced?
  2. At $153, Travelers Stock Has Limited Upside
  3. Travelers Stock To Top The Street Expectations In Q3?
  4. Travelers Stock Is Trading Close To Its Intrinsic Value
  5. Travelers Stock To Surpass Consensus In Q2?
  6. Travelers Stock Is Fairly Priced

Here you’ll find our previous coverage of Travelers stock, where you can track our view over time.

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 Returns May 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 TRV Return 4% 14% 45%
 S&P 500 Return 1% -13% 86%
 Trefis Multi-Strategy Portfolio 1% -16% 228%

[1] Month-to-date and year-to-date as of 5/31/2022
[2] Cumulative total returns since the end of 2016

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