Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?

TRV: The Travelers Companies logo
The Travelers Companies

Travelers’ stock (NYSE: TRV) has gained 20% YTD, as compared to the 9% rise in the S&P500 index over the same period. Further, it is currently trading at around $229 per share, which is 4% above its fair value of $220 – Trefis’ estimate for Travelers’ valuation.

Amid the current financial backdrop, TRV stock has seen extremely strong gains of 65% from levels of $140 in early January 2021 to around $230 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. TRV is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 11% in 2021, 20% in 2022, and 2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TRV underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TRV face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The insurance giant outperformed the street estimates in the fourth quarter of 2023, with revenues increasing 13% y-o-y to $10.9 billion. It was primarily driven by a similar growth in the net written premiums to $9.97 billion. Notably, the net written premiums were up due to a 15% increase in personal insurance, followed by a 14% gain in the business insurance segment. On the cost front, the claims expenses as a % of revenues witnessed a favorable decrease from 89.7% to 81.5%. Overall, the net income almost doubled to $1.6 billion in the quarter. 

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The company’s top line grew 12% y-o-y to $41.3 billion in FY 2023. It was mainly due to a 12% rise in the net written premiums figure, followed by a 14% improvement in the net investment income. On the flip side, the claims and expenses as a % of revenues increased over the same period, partially offsetting the positive impact of revenue growth. Altogether, the net income increased 5% y-o-y to $2.99 billion.

Moving forward, we expect the same trend to continue in Q1. Overall, Travelers revenues are forecast to touch $44.5 billion in FY2024. Additionally, TRV’s adjusted net income is likely to remain around $4.1 billion in the year. This coupled with an annual GAAP EPS of $18.04 and a P/E multiple of just above 12x will lead to a valuation of $220.

 Returns Mar 2024
MTD [1]
YTD [1]
Total [2]
 TRV Return 4% 20% 87%
 S&P 500 Return 2% 9% 132%
 Trefis Reinforced Value Portfolio 1% 6% 652%

[1] Returns as of 3/28/2024
[2] Cumulative total returns since the end of 2016

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