Travelers Stock Was Down 8% In A Day. Why?

Travelers’ stock (NYSE: TRV) dropped 8% on 19th July (Friday) vs a nearly 1% rise in the S&P500 index. In comparison, Travelers’ peer, Hartford Financial (NYSE: HIG),  was down 4% on the 19th. Travelers’ price fell after TRV announced second quarter results, where revenues and premiums missed the street estimates, despite posting a year-on-year growth. Overall, it is currently trading at around $203 per share, which is 9% below its fair value of $224 – Trefis’ estimate for Travelers’ valuation.

Amid the current financial backdrop, TRV stock has seen extremely strong gains of 45% from levels of $140 in early January 2021 to around $205 now, vs. a similar change for the S&P 500 over this roughly 3-year period. TRV is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 11% in 2021, 20% in 2022, and 2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TRV underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TRV face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company posted total revenues of $11.2 billion in the second quarter of 2024 – up 12% y-o-y. It was driven by an 11% growth in the premiums figure, coupled with a 24% jump in the net investment income. The premium figure benefited from an 11% rise in business insurance and a 12% increase in the personal insurance segment. Similarly, the net investment income was up due to an improvement in the average invested assets and net investment yield. On the cost front, the claims expenses as a % of revenues witnessed a favorable decrease in the quarter. Overall, the net income increased from -$14 million to $534 million.

The company’s top line grew 12% y-o-y to $41.3 billion in FY 2023, primarily driven by improvement in the written premiums and net investment income. However, total expenses as a % of revenues witnessed an unfavorable increase in the year, hurting the bottom line. Altogether, the net income rose by 5% y-o-y to $2.99 billion.

Moving forward, we expect the same trend to continue in Q3. Overall, Travelers’ revenues are estimated to reach $45.6 billion in FY2024. Additionally, TRV’s adjusted net income margin is likely to see some growth in the year. This coupled with an annual GAAP EPS of $16.97 and a P/E multiple of just above 13x will lead to a valuation of $224.

[1] Returns as of 7/22/2024
[2] Cumulative total returns since the end of 2016

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