Travelers Posts Strong 4Q Net Income Of $1.3B, Street Says Hold

Shares of Travelers rose 2.5% after the company reported its FY20 and 4Q earnings on Jan. 21. Travelers posted 4Q earnings of $4.91 per share, ahead of the $3.14 per share consensus estimate. Revenues for the quarter came in at $8.4 billion, beating analysts’ estimates of $7.3 billion.

Don't Miss Our Christmas Offers:

Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter

The Travelers Companies (TRV) announced a strong 50% gain year-on-year in net income to $1.3 billion. This growth was underpinned by net earned premiums of $7.5 billion in 4Q.

Chairman and CEO, Alan Schnitzer, commented, “The results benefited from strong underlying underwriting income, driven by record net earned premiums of $7.5 billion and an underlying combined ratio which improved 3.4 points from the prior year quarter to an excellent 88.7%. That brings full year core income to $2.7 billion, or $10.48 per diluted share, and full year core return on equity exceeding 11%, a terrific result in a challenging economic and operating environment.”

Net written premiums in 4Q were up by 3% year-on-year, with the figure landing at $7.3 billion. Travelers’ three business segments, including Business Insurance, Bond & Specialty Insurance and Personal Insurance, continued to exhibit strong renewal rate and retention in the fourth quarter. (See TRV stock analysis on TipRanks)

Additionally, total capital returned to shareholders was $419 million in 4Q, including share repurchases of $201 million. The company’s book value per share rose by 14% from the end of FY19 to $115.68 in FY20.

Yesterday, Wells Fargo analyst Elyse Greenspan reiterated a Hold and raised the price target from $145 to $150. Greenspan commented, “TRV’s results beat on better underlying results and stronger favorable reserve development (a good portion from workers’ comp) and extremely low cat losses. NPW rose by 2.7%, in-line with our estimate and the Q3. NII was $677 million, better than our $593 million estimate with the upside mostly due to other investments.”

Greenspan further said, “The underlying combined ratio of 88.7% beat our 89.9% estimate with all segments beating us (the net Covid-19 impact is given on the conf call). Cats were only $29 million, lower than our $115 million estimate. TRV repurchased $201 million shares, ahead of our $150 million estimate and the first time the company has bought back shares since Q1 2020. Book value per share rose by 5.2% and the core ROE was 20.5%. TRV should trade up on earnings exceeding expectations and the better underlying margin in the quarter.”

Overall, analysts are neutral about the stock. The consensus is a Hold, with 2 analysts suggesting a Buy, 5 analysts recommending a Hold and 4 analysts a Sell. The average price target of $140.70 implies 5.4% downside potential to current levels.