It has been a month since the last earnings report for The Travelers Companies, Inc . TRV . Shares have lost about 2.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Travelers Q3 Earnings Surpass Estimates, Slump Y/Y
Travelers’ third-quarter 2017 core income of 91 cents per share comfortably beat the Zacks Consensus Estimate of 52 cents by a whopping 75%. However, the bottom line plunged 62.1% year over year.
This year-over-year decline in earnings can be attributed to massive catastrophe losses caused by the unprecedented hurricane activity. However, an increased net investment income partially offset this downside. Also, the bottom line was boosted by share buybacks.
Notably, the company delivered record net premiums this quarter, driven by the company’s well-rounded execution of its marketplace strategies.
Behind the Q3 Headlines
Total revenue of Travelers improved nearly 5.2% from the year-ago quarter to $7.3 billion. Also, revenues surpassed the Zacks Consensus Estimate of $7.0 billion.
Net written premiums displayed a record 4.2% year-over-year increase to $6.7 billion owing to growth in each business segment – Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.
Net investment income inched up 1% year over year to $588 million owing to higher private equity returns. This improvement, however, was partially offset by a decrease in fixed income returns due to lower reinvestment rates available in the market.
Travelers reported an underwriting loss of $246 million in contrast to the underwriting gain of $408 million in the year-ago quarter. Combined ratio deteriorated 1030 basis points (bps) year over year to 103.2% due to higher underlying combined ratio, wider catastrophe losses as well as lower net favorable prior-year reserve development.
At the end of the third quarter, statutory capital and surplus was $20.7 billion and the debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 23.3%. This was within the company’s target range of 15-25%. Adjusted book value per share was $83.06, up 5.4% year over year.
Travelers’ Business and International Insurance unit reported net written premiums of $3.4 billion, up 1.4% year over year. A continued strong retention, an improved renewal premium change and an increase in new business led to this upside.
Combined ratio came in at 109.8%, deteriorating 1370 bps year over year due to wider catastrophe losses and a higher underlying combined ratio. However, higher net favorable prior-year reserve development partially offset this downside.
Segment income of $105 million plummeted 75.8% due to significantly higher catastrophe losses and a lower underlying underwriting gain.
Bond & Specialty Insurance : Net written premiums nudged up 1.8% year over year to $611 million, primarily driven by record retention and positive renewal premium change.
Combined ratio deteriorated 710 bps year over year to 77.7% due to lower net favorable prior-year reserve development and higher catastrophe losses, partially offset by a lower underlying combined ratio.
Segment income dropped 17.6% year over year to $136 million due to lower net favorable prior-year reserve development.
Personal Insurance : Net written premiums increased 8.9% year over year to about $2.6 billion.
Combined ratio deteriorated 620 bps year over year to 99.7% due to higher catastrophe losses, partially offset by a lower underlying combined ratio and no net unfavorable prior-year reserve development when compared with net favorable prior-year reserve development in the year-ago quarter.
Segment income of $77 million slumped 52.8% due to noticeably higher catastrophe losses. However, this downside was partially offset by higher underlying underwriting gain.
Dividend and Share Repurchase Update
The property & casualty (P&C) insurer returned total capital of $528 million to shareholders in the reported quarter. This included a buyback of 2.6 million shares worth $328 million in the reported quarter. The company is now left with shares worth $4.9 billion for repurchase under its existing authorization at the end of the third quarter.
The company’s board announced a quarterly dividend of 72 cents per share in the reported quarter, payable on Dec 29, 2017 to shareholders of record at the close of business as of Dec 11, 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 26.2% due to these changes.
The Travelers Companies, Inc. Price and Consensus
The Travelers Companies, Inc. Price and Consensus | The Travelers Companies, Inc. Quote
At this time, Travelers’ stock has a subpar Growth Score of D. It is lagging a bit on the momentum front with an F. However, 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 C. If you aren’t focused on one strategy, this score is the one you should be interested in.
The company’s stock is suitable solely for value investors based on our style scores.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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