It has been about a month since the last earnings report for Travelers (TRV). Shares have lost about 1.2% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Travelers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Travelers' Q2 Earnings Miss Estimates But Rise Y/Y
The Travelers Companies second-quarter 2019 core income of $2.02 per share missed the Zacks Consensus Estimate of $2.27 by 11%. However, the bottom line improved 11.6% year over year.
The year-over-year improvement in earnings can largely be attributed to lower level of catastrophe loss and higher net investment income. However, higher non-catastrophe weather-related losses and lower net favorable prior year reserve development were partial offsets.
Behind the Q2 Headlines
Travelers’ total revenues rose 5% from the year-ago quarter to $7.8 billion.
Net written premiums grew 4% year over year to a record $7.5 billion owing to increase in each of the business segments, namely Business and International Insurance, Bond & Specialty Insurance and Personal Insurance.
Net investment income increased 8.9% year over year to $648 million.
Travelers witnessed underwriting gain of $74 million, down 17.8% from the year-earlier period. Combined ratio deteriorated 30 basis points (bps) year over year to 98.4% attributable to higher underlying combined ratio and lower net favorable prior year reserve development, partially offset by lower catastrophe losses.
At the end of the second quarter, statutory capital and surplus were $21.1 billion. Debt-to-capital ratio (excluding after-tax net unrealized investment gains) was 20.6%, within the company’s target range of 15-25%.
Adjusted book value per share was $90.05, up 3% from 2018 end.
Core return on equity was 9.2%, up 50 bps year over year.
Personal Insurance : Net written premiums of $2.9 billion increased 6% year over year driven by solid performance at Agency Automobile as well as Agency Homeowners and Other.
Combined ratio improved 470 bps year over year to 100.2% due to lower catastrophe losses, partially offset by higher underlying combined ratio.
Segment income of $88 million marked a reversal from the year-ago loss of $17 million and was driven by lower catastrophe losses and higher net investment income. However, lower underlying underwriting gain was a partial offset.
Bond & Specialty Insurance : Net written premiums rose 9% year over year to $710 million, primarily backed by continued strong retention and new business in management liability and surety.
Combined ratio deteriorated 840 bps year over year to 74.9% owing to lower net favorable prior year reserve development and higher underlying combined ratio, partially offset by lower catastrophe losses.
Segment income dropped 14.7% year over year to $174 million on lower net favorable prior year reserve development.
Business Insurance : Net written premiums increased 6% year over year to about $2.9 billion, reflecting continued strong retention and higher renewal premium change.
Combined ratio deteriorated 230 bps year over year to 101.1%, attributable to higher catastrophe, a higher underlying combined ratio and lower net favorable prior year reserve development.
Segment income of $351 million was down 8.8% year over year. The downside was due to higher catastrophe losses, lower underlying underwriting gain and lower net favorable prior year reserve development, partially offset by higher net investment income.
Dividend and Share Repurchase Update
The property & casualty insurer returned $593 million in the reported quarter. It repurchased 2.6 million shares worth $376 million. The company is now left with $2.536 billion worth of shares under its existing authorization.
The company’s board approved a quarterly dividend of 82 cents per share. The dividend is payable on Sep 30, 2019 to shareholders of record at the close of business as of Sep 10, 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Travelers has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Travelers has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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