Travelers Companies Inc. Stock Analysis

온라인 슬롯 사이트

is an insurance conglomerate based out of New York. The company primarily offers three types of insurance: Personal, Business, and Bond & Specialty. Like any other insurance company, Travelers serves a wide variety of customers and industries ranging from general liability for businesses to kidnap and ransom products.

Natural disasters have been getting worse over the years. 2020 was a terrible year, with 2021 expected to be just the same or even worse. Source: 

Catastrophe After Catastrophe

At the end of FY20, the company was doing very well. It had been slowly but surely increasing its net income for several years, and it was functioning precisely as an insurance company should: prudently. However, FY21 has been a disastrous year for many insurance companies, especially those providing reinsurance against catastrophe losses. Travelers is one such company. is a way for insurers to protect themselves against substantial claims. Reinsurers provide per claim, which means they are exposed to significant losses in rare circumstances.

2021 has been a particularly devastating year for the US from a natural disasters standpoint. The in the beginning of the year caused in excess of $195 billion worth of damage. This was in Texas alone, and there were natural disasters of a smaller magnitude elsewhere in the country too.

For Travelers, this spells bad news. According to the company’s quarterly reports, its catastrophe losses in the first quarter amounted to $835 million, with total reinsurance losses amounting to $915 million. In FY20, the number was just $333 million in the same quarter. The second quarter was slightly better, with losses of $475 million. Remember that these are net figures, meaning that the reinsurance premiums are accounted for. The gross figures will be over 10% higher, considering the average gross margin of the company’s business model.

We are going to experience 2021’s hurricane season over the next couple of months. While it is not , we expect the company to stomach further losses before FY21 ends.

An Average Long-Term Outlook

In our opinion, the company was fairly valued at the end of FY20, with a P/E ratio of 13.3. For insurance companies, the profits come when nothing happens. When there are catastrophe losses to endure, insurance companies usually have a terrible time.

However, you won’t be able to tell this by looking at the company’s stock price. It was in the mid-$130s in January, and it is around $160 at the time of writing. This is mainly because analysts predict the net income to rise from $2.7 billion in FY20 to over $3.1 billion in FY21. On the other hand, we believe this is a best-case scenario where the company does not have to deal with colossal catastrophe losses in the rest of the year.

Even in this case, the P/E ratio is expected to stay at 13.0 for both FY21 and FY22 before falling to 12.5 in FY23. This is mainly because analysts expect the company’s earnings to fall by over $100 million in FY22 and stay at that point in FY23. The fall in net income is not likely to come from a fall in revenues, but a reduced net margin due to the company not being able to invest the premiums at a similar rate of return as they have been (as the growth in markets is ).

That said, it is clear that Travelers will not continue to experience the same growth that it has experienced in the last few years, which makes investing in it from a capital gains point of view pointless.

The company has increased its dividend in Q2, and we expect this to continue for years to come. Source: 

Despite Everything, The Dividend is Sweet

In FY20, the total dividend offered by the company was $3.37. This dividend is expected to increase continuously. Despite the slight fall in profits that is expected in the coming years, Travelers is a mature company that has no real need for its profits apart from making sure that all claims are met without issue.

As such, the dividend is expected to rise to $3.50 in FY21, $3.69 in FY22, and $3.89 in FY23. This is an increase of over 5% year on year, making Travelers an excellent dividend growth stock to invest in.

Although we don’t believe that the company will achieve significant growth, we are also almost entirely sure that it will not experience substantial losses in the years to come. As such, we believe that the increase in the dividend will continue, and those looking for that is comfortably higher than 2% should invest in Travelers. Those looking for capital gains, however, should probably stay away.

 

 

About the Author:

Baruch Mann (Silvermann) is an experienced investor and founder of . Baruch has an extensive investing background when it comes to stocks, commodities and options. Most important to Baruch is providing new angles in his analysis in order to improve readers understanding and help them to create a winning investing strategy.