With shares of The Travelers Companies (NYSE:TRV) trading at around $81.74, 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 can be summed up in five words: discipline, efficiency, leadership, responsibility, and resiliency. Any sane investors with a long-term time horizon would be interested in a company with these attributes.
Travelers has underwriting discipline. In regards to efficiency, it has a profit margin of 9.98 percent, which is higher than peers. For example, W.R. Berkley Corporation (NYSE:WRB) has a profit margin of 8.27 percent, and American International Group (NYSE:AIG) has a profit margin of 3.80 percent. When it comes to leadership, according to Glassdoor.com, 80 percent of employees approve of CEO Jay S. Fishman. For responsibility, debt management has been strong. And for resiliency, Travelers held up much better than most stocks throughout the broader market during the financial crisis as well as better than most stocks throughout the industry.
Other positives for Travelers include:
- Decline in catastrophe losses
- Higher underwriting margins
- Recent dividend hike
- Product diversification
- Geographic diversification
- Miniscule short position of 0.90 percent (always a good sign)
- Higher dividend yield than peers at 2.40 percent (more details in chart below)
- Strong cash flow
- Slow yet steady revenue increases on an annual basis
- Analysts love the stock: 13 Buy, 12 Hold, 0 Sell
Earnings tend to fluctuate, but profits are always large. As long as this remains to be the case, Travelers will continue to return capital to shareholders. And there is no reason to think this trend will change.
The chart below takes a look at some basic fundamentals for Travelers, AIG, and W.R. Berkley.
|Operating Cash Flow||2.95B||3.43B||716.81M|
Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Travelers hasn’t performed well over the past month, but this is an investment, not a trade. Travelers has been a steady winner over the long haul.
|1 Month||Year-To-Date||1 Year||3 Year|
At $81.74, Travelers is trading below its 50-day SMA, but still above its 200-day SMA.
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for Travelers is stronger than the industry average of 0.30.
E = Earnings Are Steady
As stated earlier, earnings fluctuate, but Travelers consistently delivers big numbers. Revenue has been slow and steady, which is exactly what long-term investors want to see.
|Revenue ($) in millions||24,477||24,680||25,112||25,446||25,740|
|Diluted EPS ($)||4.82||6.33||6.62||3.36||6.30|
Looking at the last quarter on a year-over-year basis, revenue declined and earnings improved. For a company list Travelers, it would be wise to pay more attention to annual numbers.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||6,392||6,359||6,512||6,477||6,328|
|Diluted EPS ($)||2.02||1.26||2.21||0.78||2.33|
Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
It would be difficult to find a significant negative for Travelers. One could argue that competition is increasing, but competition seems to be increasing in every industry due to unusual economic conditions. It’s difficult to see the real long-term winners when times are good because everyone is winning. When times are more challenging, the true winners will remain strong. Travelers is likely to fit into that category.
Travelers is a long-term OUTPERFORM.
Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.
All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.