Will The Travelers Companies Weather the Storm?

With shares of The Travelers Companies (NYSE:TRV) trading at around $73.06, 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:

C = Catalyst for the Stock’s Movement

Travelers InsuranceWhen it comes to property & casualty insurance, investors hope for non-events so they can collect their dividends and be on their merry way. It’s even better when industry stocks move at a more rapid pace than expected, which has been the case over the past three years. The future is likely bright for Travelers, but Sandy might not be through wreaking her havoc.

Travelers has a lot of exposure on the east coast, and there is no telling what the financial damage might be for the company. There are reports that losses will be in the billions, but that’s still a very broad statement. On a positive note, most people don’t have flood insurance. This limits the damage. Even though one death is one too many, it should be noted that the death toll wasn’t as high as expected, which is another plus. Simply put, the biggest factor for near-term stock performance relates to Hurricane Sandy. We will soon know more about the financial damage.

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One completely different type of storm that Travelers weathered well was the financial crisis of 2008/2009. The stock dropped, but not nearly as much as others. Dividend payments also helped investors get through. It didn’t take long for the stock to rebound and climb higher. This is important considering many other stocks still haven’t recovered. It shows the strength of the company.

What also shows the strength of the company is that Fitch recently reaffirmed the company’s Issuer Default Rating at A+. This increases creditworthiness in the market and boosts investor confidence. Other positives include a Forward P/E of 10.68, solid margins, and operating cash flow over $3 billion.

Let’s take a look at some more important numbers.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Travelers is excellent. However, the balance sheet could use some help.  

Debt-To-Equity

Cash

Long-Term Debt

TRV

0.25

$220.00 Million

$6.35 Billion

CB

0.22

$53.00 Million

$3.58 Billion

ALL

0.29

$642.00 Million

$6.06 Billion

 

T = Technicals on the Stock Chart Are Strong

Travelers has performed well over the past three years. That said, you shouldn’t expect 26 percent annual gains from Travelers on a regular basis. Travelers also yields 2.50 percent, which is higher than The Chubb Corporation (NYSE:CB) at 2.10 percent, and The Allstate Corporation (NYSE:ALL) at 2.10 percent.

1 Month

Year-To-Date

1 Year

3 Year

TRV

-0.49%

1.68%

26.57%

63.40%

CB

0.11%

2.51%

13.97%

68.14%

ALL

0.63%

3.91%

52.71%

45.82%

 

At $73.06, Travelers is currently trading above all its averages.

50-Day SMA

71.48

100-Day SMA

69.50

200-Day SMA

65.85

 

E = Earnings Have Been Sporadic, But Revenue Has Been Consistent

Revenue has steadily increased since 2008. Earnings have been a little more unpredictable, but this is normal for the industry.

2007

2008

2009

2010

2011

Revenue ($)in billions

5.86

5.95

5.40

6.63

7.89

Diluted EPS ($)

1.34

3.32

1.28

2.25

1.77

 

When we look at last quarter on a YoY basis, we see a moderate increase in revenue and a substantial increase in earnings.

9/2011

12/2012

3/2012

6/2012

9/2012

Revenue ($)in billions

6.41

6.37

6.39

6.36

6.51

Diluted EPS ($)

0.79

1.53

2.02

1.26

2.21

T = Trends Support the Industry

Even if there are some tough years, this industry will never fade away as so many others do. Therefore, the long-term trend always supports the industry. At the moment, Sandy may play a role, but it’s temporary.

Conclusion

Since we don’t know specifics on the impact Sandy will have on Travelers, it would be wise to stay on the sidelines right now. Travelers is highly likely to outperform over the long haul, but based on the current circumstances, Travelers is a WAIT AND SEE.

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