The Travelers Companies, Inc. (TRV) in New York City is a leading provider of assorted property and casualty insurance products internationally. With a $40.08 billion market cap, TRV is a component of the Dow Jones Industrial Average index. 

The company is ranked #98 in the Fortune 500 – 2021 list and #385 in the Global 500 – 2021 list. And it has an ISS Governance QualityScore of 1, indicating low governance risk.

TRV is one of the best-performing stocks in the DJIA index in 2022, gaining 6.2% year-to-date. This compares with the benchmark index’s 3.3% decline so far this year. In the last quarter, TRV’s impressive financial performance fostered bullish investor sentiment despite the broader market's weakness.

Here is what could shape TRV’s performance in the near term:

Better-Than-Expected Financials

TRV’s total revenues increased 7% year-over-year to record $9.01 billion in the fiscal fourth quarter, ended Dec. 31, 2021. This can be attributed to a 10% year-over-year rise in net written premiums. The company beat the $8.66 billion FactSet consensus revenue estimate by 4%. Its net income came in at a record $1.33 billion, while its core income rose 2% from the same period last year to $1.29 billion. Its core earnings per share increased 6% from the prior-year quarter to $5.20, surpassing the $3.86 FactSet consensus estimate.

Lower-Than-Industry Profit Margins

TRV’s 27.21% trailing-12-month gross profit margin is 56.9% lower than the 63.13% industry average. Its 10.52% net income margin is 65.2% lower than the 30.22% industry average, while its 16.28% EBITDA margin is 31% lower than the 23.6% industry average.

In addition, TRV’s 36.19% and 12.52% respective trailing-12-month levered free cash flow margin and ROE compare with 22.3% and 12.77% industry averages.

Mixed Growth Outlook

Analysts expect TRV’s revenues to rise 8.6% in its fiscal year 2022 first quarter (ending March), 7.2% in the current year, and 4.9% next year. The consensus EPS estimates indicate a 24.9% year-over-year improvement in the current quarter and an 11.3% increase next year. However, the Street expects the company’s EPS to decline 36.8% in the fiscal 2022 second quarter (ending June) and 8.7% in the current year.

Consensus Rating and Price Target Indicate a Slight Upside

Of the 12 Wall Street analysts that rated TRV, one rated it Buy, while 10 rated it Hold, and one rated it Sell. The 12-month median price target of $176.18 indicates a 6% potential upside from yesterday’s closing price of $166.18. The price targets range from a low of $165.00 to a high of $200.00.

POWR Ratings Reflect Uncertainty

TRV has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

TRV has a C grade for Value, Quality, and Sentiment. The stock’s 13.05 forward non-GAAP P/E ratio is slightly higher than the 12.01 industry average, which is in sync with the Value grade. In addition, TRV’s lower-than-industry profit margins and mixed analyst sentiment justify the Quality and Sentiment grade.

Of the 29 stocks in the B-rated Insurance – Life industry, TRV is ranked #8.

Beyond what we have stated above, one can view TRV ratings for Growth, Momentum, and Stability here.

Bottom Line

TRV is one of the largest insurance companies globally and was one of the world’s most admired companies last year. However, its profit margins are lower than its industry peers, which is concerning. While analysts expect TRV’s revenues to grow at a stable rate in the coming quarters, this growth is not likely to translate into adequate bottom-line improvement. Thus, we think investors should wait until TRV’s earnings and profit margins improve before investing in the stock.

How Does the Travelers Companies, Inc. (TRV) Stack Up Against its Peers?

While TRV has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Humana Inc. (HUM), SCOR SE (SCRYY), and T&D Holdings, Inc. (TDHOY), which have a B (Buy) rating.

TRV shares were trading at $165.96 per share on Tuesday morning, down $0.22 (-0.13%). Year-to-date, TRV has gained 6.09%, versus a -5.27% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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