Insurance Stocks

Travelers Companies Inc Valuation – February 2018 $TRV

Company Profile (obtained from Marketwatch): The Travelers Cos., Inc. operates as a holding company, which engages in the insurance business. It operates through the following segments: Business and International Insurance; Bond & Specialty Insurance; and Personal Insurance. The Business and International Insurance segment offers property and casualty insurance; and insurance related services. The Bond & Specialty Insurance segment provides surety; fidelity; management liability; professional liability; and other property and casualty coverage and related risk management services. The Personal Insurance segment includes property and casualty insurance covering individuals’ personal risks. The company was founded in 1853 and is headquartered in New York, NY.

TRV Chart

TRV data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TRV – February 2018

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 $38,246,261,539 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 68.06% Pass
5. Moderate PEmg Ratio PEmg < 20 14.80 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.62 Pass
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

EPSmg $9.44
MG Growth Estimate 2.04%
MG Value $118.68
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $136.90
MG Value based on 0% Growth $80.25
Market Implied Growth Rate 3.15%
Current Price $139.74
% of Intrinsic Value 117.74%

Travelers Companies Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $8.31 in 2014 to an estimated $9.44 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.15% 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 below the price.

At the time of valuation, further research into Travelers Companies Inc revealed the company was trading above its Graham Number of $138.27. The company pays a dividend of $2.83 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 14.8, which was below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Travelers Companies Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $138.27
PEmg 14.80
PB Ratio 1.62
Dividend Yield 2.03%
TTM Dividend $2.83
Number of Consecutive Years of Dividend Growth 12

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $6,571,000,000
Total Assets $103,483,000,000
Intangible Assets $4,293,000,000
Total Liabilities $79,752,000,000
Shares Outstanding (Diluted Average) 275,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.80
Dec2017 $7.33
Dec2016 $10.28
Dec2015 $10.88
Dec2014 $10.70
Dec2013 $9.74
Dec2012 $6.30
Dec2011 $3.36
Dec2010 $6.62
Dec2009 $6.33
Dec2008 $4.81
Dec2007 $6.85
Dec2006 $5.91
Dec2005 $2.33
Dec2004 $1.53
Dec2003 $3.80
Dec2002 -$0.07
Dec2001 -$5.22
Dec2000 $4.24
Dec1999 $3.41
Dec1998 $0.32

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.44
Dec2017 $9.44
Dec2016 $10.19
Dec2015 $9.49
Dec2014 $8.31
Dec2013 $6.90
Dec2012 $5.48
Dec2011 $5.25
Dec2010 $6.16
Dec2009 $5.71
Dec2008 $5.02
Dec2007 $4.78
Dec2006 $3.40
Dec2005 $1.59
Dec2004 $1.10
Dec2003 $1.00
Dec2002 -$0.09

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Defensive Investor – May 2016
10 Most Undervalued Companies for the Defensive Investor – February 2016
11 Best Stocks For Value Investors This Week – 11/21/15
Travelers Companies Inc. Valuation – November 2015 Update $TRV
5 Undervalued Dow Stocks to Research – November 2015

Other ModernGraham posts about related companies

Hanover Insurance Group Valuation – Initial Coverage $THG
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Assurant Inc Valuation – March 2017 $AIZ
American International Group Inc Valuation – March 2017 $AIG
Torchmark Corporation Valuation – March 2017 $TMK
Humana Inc Valuation – Initial Coverage $HUM
Chubb Ltd Valuation – March 2017 $CB
Stewart Information Services Corp Valuation – Initial Coverage $STC
Loews Corporation – February 2017 $L
Kemper Corp Valuation – Initial Coverage $KMPR

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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