Travelers’ stock (NYSE: TRV) has lost 6% YTD, as compared to the 15% rise in the S&P500 index over the same period. Further, it is currently trading at around $176 per share, which is 11% below its fair value of $197 – Trefis’ estimate for Travelers’ valuation. The insurance giant posted mixed results in the first quarter of 2023, with earnings beating expectations but revenues missing the mark. It reported a 10% y-o-y increase in the total revenues to $9.7 billion, primarily driven by a similar growth in the premiums. Notably, the premiums benefited from a 10% rise in business insurance and a 12% rise in personal insurance units. On the flip side, the claims expenses as a % of revenues increased from 86.6% to 90.4% in the quarter. Overall, it led to a 4% decline in the net income to $975 million.
The company’s top line improved by 6% y-o-y to $36.89 billion in FY 2022. It was mainly due to an 11% growth in the premiums figure, driven by higher revenues in each of the three insurance segments – business insurance, bond & specialty insurance, and personal insurance. That said, the positive impact was somewhat offset by lower net investment income. On the cost front, the claims and expenses witnessed an unfavorable increase in the year, leading to a 22% reduction in the net income to $2.8 billion.
Moving forward, the premiums are likely to drive TRV’s growth in Q2. Notably, the consensus estimates of Q2 revenues and earnings are $10 billion and $2.54, respectively. Altogether, Travelers’ revenues are forecast to touch $39.1 billion in FY2023. Additionally, TRV’s adjusted net income margin is likely to improve in the year, leading to an adjusted net income of $3.3 billion and an annual GAAP EPS of $14.43. This coupled with a P/E multiple of just below 14x will lead to a valuation of $197.
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