The Travelers Companies (TRV) Quarterly Valuation

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how The Travelers Companies fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Travelers Companies, Inc. (TRV) is a holding company. The Company, through its subsidiaries, 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 is organized into three business segments: Business Insurance; Financial, Professional and International Insurance, and Personal Insurance. The Business Insurance segment offers an array of property and casualty insurance and insurance-related services to its clients primarily in the United States. The Financial, Professional and International Insurance segment includes surety and financial liability coverage’s, which primarily use credit-based underwriting processes, as well as property and casualty products that are marketed on a domestic basis. In November 2013, the Company completed the sale of its wholly owned subsidiary The Dominion of Canada General Insurance Company to The Travelers Companies, Inc.

TRV data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 6/6

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
5. Moderate PEmg ratio – PEmg is less than 20 – PASS
6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

1. Earnings Stability – positive earnings per share for at least 5 years – PASS
2. Dividend Record – currently pays a dividend – PASS
3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price	$82.88
MG Value	$96.30
MG Opinion	Fairly Valued
Value Based on 3% Growth	$99.12
Value Based on 0% Growth	$58.11
Market Implied Growth Rate	1.81%
PEmg	12.12
PB Ratio	1.18

Balance Sheet – 12/31/2013

Total Debt	$6,346,000,000
Total Assets	$103,812,000,000
Intangible Assets	$3,985,000,000
Total Liabilities	$79,016,000,000
Outstanding Shares	353,500,000

Earnings Per Share

2013	$9.46
2012	$6.34
2011	$3.39
2010	$6.67
2009	$6.37
2008	$4.81
2007	$6.86
2006	$5.91
2005	$2.95
2004	$1.53
2003	$2.88
2002	$0.80

Earnings Per Share – ModernGraham 

2013	$6.84
2012	$5.52
2011	$5.28
2010	$6.19
2009	$5.76
2008	$5.11

Dividend History

TRV Dividend data by YCharts

Conclusion:

Travelers fares very well in the ModernGraham approach, having passed all of the requirements of both the Defensive Investor and the Enterprising Investor.  The intrinsic value has improved from $85.91 in our last valuation of the company to $96.30, largely due to earnings figures that were better than I anticipated (side note: this is a great benefit of basing valuations on the low estimates – it is better to have guessed low than guess high).  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research.  Research should include a review of some other companies, such as through a review of ModernGraham’s valuation of Ace Limited (ACE), or ModernGraham’s valuation of AFLAC (AFL).  From a valuation perspective, the company has improved its EPSmg (normalized earnings) from $5.11 in 2008 to $6.84 for 2013.  This is a solid level of growth that supports the market’s current implied growth estimate of 1.81%.  As a result, the company appears to be fairly valued at the present time.

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 (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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Travelers Comopanies (TRV) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.