Travelers’ stock (NYSE: TRV) has lost 13% YTD, as compared to the 16% rise in the S&P500 index over the same period. Further, it is currently trading at around $163 per share, which is 15% below its fair value of $193 – Trefis’ estimate for Travelers’ valuation.
Interestingly, Travelers stock had a Sharpe Ratio of 0.3 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.28 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The insurance giant posted mixed results in the second quarter of 2023, with revenues being in line with expectations but earnings missing the mark. It reported an 11% y-o-y increase in the total revenues to $10.1 billion, primarily driven by a 14% growth in the net written premiums. Notably, the net written premiums were up due to an 18% increase in business insurance and a 13% rise in the personal insurance units. On the cost front, the claims expenses as a % of revenues witnessed an unfavorable increase from 92.8% to 100.5% due to catastrophe losses in the quarter. Overall, it led to a net loss of $14 million, as compared to a net income of $551 million in the year-ago period.
The company’s top line grew 10% y-o-y to $19.8 billion in the first half of FY 2023. It was mainly due to a 13% growth in the net written premiums figure, followed by a 2% rise in the net investment income. On the flip side, the claims and expenses as a % of revenues increased over the same period, hurting the bottom line – net income decreased by 39% y-o-y to $961 million.
Moving forward, we expect the net investment income to see some improvement in the subsequent quarters. Altogether, Travelers revenues are estimated to touch $39.4 billion in FY2023. Additionally, TRV’ adjusted net income is likely to remain around $2.8 billion in the year. This coupled with an annual GAAP EPS of $12.24 and a P/E multiple of just below 16x will lead to a valuation of $193.
|S&P 500 Return||-1%||16%||100%|
|Trefis Reinforced Value Portfolio||-3%||28%||555%|
 Month-to-date and year-to-date as of 9/14/2023
 Cumulative total returns since the end of 2016