Does Travelers Support These Prices?

With shares of Travelers (NYSE:TRV) trading around $86, is TRV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Travelers is engaged in providing a range of commercial and personal property and casualty insurance products and services to businesses, Government units, associations and individuals. The company is organized into three business segments: Business Insurance; Financial, Professional and International Insurance, and Personal Insurance. Through its segments, Travelers offers an array of property and casualty insurance and insurance-related services to its clients, surety and financial liability coverage’s, property and casualty products, and a range of property and casualty insurance covering individuals’ personal risks. Consumers and companies worldwide like to mitigate risk as much as possible because of the uneasy that uncertainty brings. As new risks are identified and existing ones are covered, look for companies like Travelers to continue to see rising profits.

T = Technicals on the Stock Chart are Strong

Travelers stock has seen an explosive move higher over the last several years. After a huge run, the stock is now trading at all-time high prices and has not seen any significant selling pressure just yet. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Travelers is trading above its rising key averages which signal neutral to bullish price action in the near-term.

TRV

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Travelers options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Travelers Options

14.82%

10%

11%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Travelers’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Travelers look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

15.35%

-48.18%

179.75%

-239.77%

Revenue Growth (Y-O-Y)

-1.00%

1.63%

1.64%

-0.45%

Earnings Reaction

2.09%

1.74%

3.58%

-0.48%

Travelers has seen increasing earnings and revenue figures over most of the last four quarters. From these numbers, the markets have been happy with Travelers’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Travelers stock done relative to its peers, American International Group (NYSE:AIG), WR Berkley (NYSE:WRB), American Financial Group (NYSE:AFG), and sector?

Travelers

AIG

WR Berkley

American Financial Group

Sector

Year-to-Date Return

19.74%

26.20%

13.99%

23.43%

22.14%

Travelers has been an average performer, year-to-date.

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Conclusion

Travelers provides valuable insurance products and services to an increasing number of consumers and companies looking to mitigate risk. The stock has been on a significant run over the last several years and is now trading at all-time high prices. Earnings and revenue have been increasing over most of the last four quarters which has kept investors upbeat. Relative to its strong peers and sector, Travelers has been an average year-to-date performer. Look for Travelers stock to OUTPERFORM.

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