Yahoo Finance Travelers (TRV) Up 4.2% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Travelers (TRV). Shares have added about 4.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Travelers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Travelers Misses Q1 Earnings Estimates, Raises Dividend
The Travelers Companies reported first-quarter 2024 core income of $4.69 per share, which missed the Zacks Consensus Estimate of $4.75 on higher-than-expected catastrophe loss. The bottom line increased 14.1% year over year, driven by higher underlying underwriting gain and higher net investment income, partially offset by higher catastrophe losses.
Behind Q1 Headlines
Travelers’ total revenues increased 15.3% from the year-ago quarter to $11.2 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 0.1%.
Net written premiums increased 8% year over year to about $10.2 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.9 billion.
Net investment income increased 27.6% year over year to $846 million, primarily due to strong fixed-income returns and growth in fixed-maturity investments. The figure was higher than our estimate of $784 million. The Zacks Consensus Estimate was pegged at $808 million.
Catastrophe loss was $712 million, pre-tax, wider than a loss of $535 million, pre-tax, incurred in the year-ago quarter. Travelers witnessed an underwriting gain of $1.4 billion, up 57.3% year over year, driven by higher business volumes. Consolidated underlying combined ratio of 87.7 improved 290 basis points (bps) year over year. The combined ratio improved 150 bps year over year to 93.9 due to an improvement in the underlying combined ratio, partially offset by higher catastrophe losses and lower net favorable prior year reserve development. The Zacks Consensus Estimate was pegged at 94.
Core return on equity expanded 90 basis points to 15.4%. Adjusted book value per share (excludes net unrealized investment gains/losses) of $125.53 increased 8% year over year. At quarter-end, statutory capital and surplus were $25.3 billion and the debt-to-capital ratio was 24.3%.
Segment Update
Business Insurance: Net written premiums increased 9% year over year to about $5.6 billion, reflecting strong renewal premium change and retention, as well as higher levels of new business. Business Insurance net written premiums beat our estimate of $5 billion.
The combined ratio improved 30 bps year over year to 93.3 due to a lower underlying combined ratio and lower catastrophe losses, partially offset by no net prior year reserve development compared with net favorable prior year reserve development in the prior year quarter. Our estimate was 95.1. The Zacks Consensus Estimate was pegged at 93. Segment income of $764 million increased 1.1% year over year on higher net investment income. The figure was higher than our estimate of $763.5 million.
Bond & Specialty Insurance: Net written premiums increased 6% year over year to $943 million, reflecting strong retention and new business in high-quality management liability business. Our estimate was $982.9 million.
The combined ratio deteriorated 450 bps year over year to 84.5 due to lower net favorable prior-year reserve development and a higher underlying combined ratio, partially offset by a smaller impact from catastrophe losses. Our estimate was 82.1. The Zacks Consensus Estimate was pegged at 81.
Segment income of $195 million decreased 5.8% year over year due to lower net favorable prior year reserve development. The figure was lower than our estimate of $231.6 million.
Personal Insurance: Net written premiums of $3.6 billion increased 9% year over year, reflecting strong renewal premium change in both Domestic Automobile and Homeowners and Other. Our estimate was $3.9 billion.
The combined ratio improved 460 bps year over year to 96.9 due to an improvement in the underlying combined ratio and higher net favorable prior-year reserve development, partially offset by higher catastrophe losses. Our estimate was 98.6. The Zacks Consensus Estimate was pegged at 97. Segment income more than doubled year over year to $220 million, driven by higher underlying underwriting gain, higher net favorable prior-year reserve development and higher net investment income.
Dividend and Share Repurchase Update
This property and casualty insurer returned $620 million to shareholders in the first quarter of 2023. It bought back 1.2 million shares for $388 million in the first quarter. The board also approved an increase of 5% to quarterly dividend to $1.05 per share. The dividend will be paid out on Jun 28, 2024, to shareholders of record at the close of business on Jun 10, 2024. This marked the 20th consecutive year of dividend increase at a compound annual growth rate of 8% over that period. Travelers had $5.79 billion remaining under authorization as of Mar 31, 2024.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
Currently, Travelers has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
