Travelers’ stock (NYSE: TRV) has seen a significant increase of 20% year-to-date, outperforming the S&P 500 index which rose by 9% over the same period. Currently trading at around $229 per share, the stock is 4% above its fair value of $220, as estimated by Trefis. Despite strong gains, TRV has not consistently beaten the market in recent years, with returns of 11% in 2021, 20% in 2022, and 2% in 2023. This performance falls short compared to the S&P 500, which saw returns of 27% in 2021, -19% in 2022, and 24% in 2023. TRV is facing challenges in consistently outperforming the market, especially in the current uncertain macroeconomic environment.
In the fourth quarter of 2023, Travelers exceeded street estimates with revenues increasing by 13% year-over-year to $10.9 billion. This growth was mainly driven by a similar increase in net written premiums to $9.97 billion. Notably, net written premiums saw a 15% increase in personal insurance and a 14% gain in the business insurance segment. Claims expenses as a percentage of revenues also decreased, leading to the net income almost doubling to $1.6 billion in the quarter.
For the full year 2023, Travelers’ top line grew by 12% to $41.3 billion, primarily due to a 12% rise in net written premiums and a 14% improvement in net investment income. However, claims and expenses as a percentage of revenues also increased over the period, partially offsetting the positive revenue growth. Despite this, the net income increased by 5% year-over-year to $2.99 billion. Looking ahead to Q1 and FY2024, Travelers’ revenues are expected to reach $44.5 billion, with adjusted net income remaining around $4.1 billion for the year, leading to a valuation of $220.
As a group, stocks in the Trefis High Quality Portfolio, which includes 30 stocks, have consistently outperformed the S&P 500 over the last three years. These HQ Portfolio stocks have provided better returns with less risk compared to the benchmark index, indicating a more stable performance. With uncertainty surrounding factors like high oil prices and elevated interest rates in the macroeconomic environment, there is speculation on whether TRV could face similar challenges in the next year and underperform the S&P 500, or if it will see a strong jump in performance.
Despite the challenges, Travelers has shown resilience and strong performance in the face of market fluctuations. With a track record of steady growth and a solid financial performance, the company is well-positioned to navigate the current market conditions. Investors looking for stable returns with less risk may find Travelers’ stock to be a reliable option in their portfolio. Additionally, with a yearly GAAP EPS of $18.04 and a P/E multiple just above 12x, Travelers’ stock is expected to maintain its valuation of $220, providing a solid investment opportunity for shareholders.
