Insurance Stocks

Travelers Companies Inc. Valuation – November 2015 Update $TRV

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Travelers Companies Inc. (TRV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Travelers Companies, Inc. is a holding company. Through its subsidiaries, the Company is engaged in providing a range of commercial and personal property and casualty insurance products and services to businesses, Government units, associations and individuals. The Company has three operating segments: Business and International Insurance segment, Bond & Specialty Insurance segment and the Personal Insurance segment. Business and International Insurance segment offers a range of property and casualty insurance and insurance related services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world. Bond & Specialty Insurance segment provides surety, crime, management and professional liability coverages, and related risk management services. Personal Insurance segment includes a range of property and casualty insurance covering individuals’ personal risks.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TRV – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,118,082,441 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 75.31% Pass
5. Moderate PEmg Ratio PEmg < 20 12.04 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.45 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

TRV value Chart November 2015

EPSmg $9.33
MG Growth Estimate 11.64%
MG Value $296.43
Opinion Undervalued
MG Value based on 3% Growth $135.22
MG Value based on 0% Growth $79.27
Market Implied Growth Rate 1.77%
Current Price $112.28
% of Intrinsic Value 37.88%

Travelers Companies Inc. qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial condition.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.25 in 2011 to an estimated $9.33 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.77% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Travelers Companies Inc. (TRV)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

TRV Charts November 2015

Graham Number $135.83
PEmg 12.04
PB Ratio 1.45
Dividend Yield 2.07%
Number of Consecutive Years of Dividend Growth 10

 

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Most Recent Balance Sheet Figures

Long-Term Debt $6,743,000,000
Total Assets $102,110,000,000
Intangible Assets $3,859,000,000
Total Liabilities $78,077,000,000
Shares Outstanding (Diluted Average) 311,000,000

Earnings Per Share History

Next Fiscal Year Estimate $10.38
Dec14 $10.70
Dec13 $9.74
Dec12 $6.30
Dec11 $3.36
Dec10 $6.62
Dec09 $6.33
Dec08 $4.81
Dec07 $6.86
Dec06 $5.91
Dec05 $2.33
Dec04 $1.53
Dec03 $3.80
Dec02 $0.92
Dec01 -$5.22
Dec00 $4.24
Dec99 $3.41
Dec98 $0.32
Dec97 $3.97
Dec96 $2.84
Dec95 $2.84

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $9.33
Dec14 $8.31
Dec13 $6.90
Dec12 $5.48
Dec11 $5.25
Dec10 $6.17
Dec09 $5.71
Dec08 $5.03
Dec07 $4.79
Dec06 $3.47
Dec05 $1.72
Dec04 $1.29
Dec03 $1.26
Dec02 $0.24
Dec01 $0.38
Dec00 $3.11
Dec99 $2.58

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Dow Stocks to Research – November 2015
The Best Companies of the Insurance Industry – October 2015
10 Low PE Stocks for the Defensive Investor – October 2015
10 Most Undervalued Companies for the Defensive Investor – September 2015
10 Low PE Stocks for the Defensive Investor – August 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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