Down 7% In A Day, Where Is Travelers Stock Headed?

+6.84%
Upside
213
Market
228
Trefis
TRV: The Travelers Companies logo
TRV
The Travelers Companies

Travelers’ stock (NYSE: TRV) has gained 8% YTD, as compared to the 5% rise in the S&P500 index over the same period. That said, the stock price plummeted 7.4% yesterday vs. a -0.6% decrease in the broader index. The drop came after the company reported lower-than-expected earnings in the first quarter of 2024. Overall, it is currently trading at around $207 per share, which is 9% below its fair value of $228 – Trefis’ estimate for Travelers’ valuation.

Amid the current financial backdrop, TRV stock has seen extremely strong gains of 45% from levels of $140 in early January 2021 to around $205 now, vs. an increase of about 35% 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 company posted total revenues of $11.2 billion in the first quarter of 2024 – up 16% y-o-y. It was driven by a 14% increase in the premiums figure, followed by a 28% rise in the net investment income (NII). Notably, the net written premiums mainly benefited from growth in the personal insurance and business insurance segments. On the cost front, the claims expenses as a % of revenues witnessed a favorable decrease from 90.4% to 87.7%. Overall, the net income improved 15% y-o-y to $1.1 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 because of higher net written premiums and improvement in the NII. On the cost front, the total expenses as a % of revenues witnessed an unfavorable increase. Altogether, the net income increased 5% y-o-y to $2.99 billion.

Moving forward, we expect the net income margin to see some improvement in Q2. Overall, Travelers revenues are forecast to touch $44.5 billion in FY2024. Additionally, TRV’s adjusted net income is likely to remain around $4.06 in the year. This coupled with an annual GAAP EPS of $18.11 and a P/E multiple of just below 13x will lead to a valuation of $228.

 Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 TRV Return -10% 8% 69%
 S&P 500 Return -4% 5% 124%
 Trefis Reinforced Value Portfolio -6% 0% 612%

[1] Returns as of 4/18/2024
[2] Cumulative total returns since the end of 2016

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