Has Travelers Traveled Too Far?

With shares of The Travelers Companies (NYSE:TRV) trading at around $83.37, 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

What hurricane? Hurricane Sandy caused an estimated $50 billion in damage in the United States, but it didn’t faze Travelers. The reason for this is that most northeast homeowners were underinsured. In most cases, homeowner policies didn’t cover flood damage. It’s estimated that fewer than 15 percent of homeowners in the northeast have flood insurance.

Company Profile: The Travelers Companies, Inc., through its subsidiaries, provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States.

This has proven to be one of the most resilient industries in existence. You could say the industry dodged a bullet with Hurricane Sandy, but let’s not forget about the financial crisis of 2008/2009, either. While The Allstate Corporation (NYSE:ALL) suffered considerably during this time, Travelers and The Chubb Corporation (NYSE:CB) held up extremely well. Over the past two decades, there haven’t been many safer investments throughout the broader market than Travelers or Chubb. But which one is the best option going forward?

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The chart below compares fundamentals for Travelers, Chubb, and Allstate. These three companies are similar in size, which increases the importance of the fundamentals. Travelers has a market cap of $31.49 billion, Chubb has a market cap of $22.65 billion, and Allstate has a market cap of $23.20 billion.

TRV

CB

ALL

Trailing   P/E

13.24

15.25

10.38

Forward   P/E

11.13

12.54

9.49

Profit   Margin

9.61%

11.40%

6.92%

ROE

9.91%

9.93%

11.85%

Operating   Cash Flow

$3.23 Billion

$2.30 Billion

$3.05 Billion

Dividend   Yield

2.20%

2.00%

2.10%

Short   Position

1.00%

1.00%

1.20%

 

All of the numbers above are similar. Travelers has the most impressive yield, but only by a hair. Let’s take a look at some more important numbers prior to forming an opinion on Travelers…

E = Equity to Debt Ratio Is Strong   

The debt-to-equity ratio for Travelers is stronger than the industry average of 0.30. However, once again, this number is very similar to Chubb’s. So far, there is no distinct advantage for either company.

Debt-To-Equity

Cash

Long-Term Debt

TRV

0.25

$3.86 Billion

$6.35 Billion

CB

0.23

$2.58 Billion

$3.58 Billion

ALL

0.33

$3.14 Billion

$6.84 Billion

 

T = Technicals on the Stock Chart Are Strong

Travelers, Chubb, and Allstate have all showed strong stock performance over the past three years. This exemplifies the strength of the industry.

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1 Month

Year-To-Date

1 Year

3 Year

TRV

4.26%

16.74%

45.69%

66.82%

CB

3.83%

15.84%

28.73%

78.68%

ALL

5.76%

21.83%

49.78%

63.99%

 

At $83.37, Travelers is trading above all its averages.

50-Day   SMA

79.96

100-Day   SMA

75.78

200-Day   SMA

70.69

 

E = Earnings Have Been Steady          

Revenue and earnings have both been steady without being overly impressive, but that’s okay. This is normal for a Property & Casual Insurance company. As long as profits continue to roll in and the dividends remain healthy, all is well.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

24.48

24.68

25.11

25.45

25.74

Diluted   EPS ($)

0.00

6.33

6.62

3.36

6.30

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings. One underperforming quarter isn’t cause for concern. Moderate fluctuations should be expected.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

6.37

6.39

6.36

6.51

6.48

Diluted   EPS ($)

1.53

2.02

1.26

2.21

0.81

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

An industry that can withstand one of the largest hurricanes and storm surges on record as well as the biggest financial crisis since The Great Depression is a strong industry. This doesn’t mean the future will be as strong, but the industry does have a history of bouncing back from all challenges.

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Conclusion

Resilience is the key word here. Different and difficult challenges continue to present themselves, yet Travelers continues to move higher. When you combine that fact with strong fundamentals and a 2.20 percent yield, Travelers is an OUTPERFORM.

In regards to Travelers vs. Chubb, it’s a wash. These two stocks have traded together for the better part of two decades. There’s no reason to think that will change. An argument can be made that the higher yield for Travelers gives it a slight edge.

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