Why You Should Offload Travelers (TRV) From Your Portfolio

The Travelers Companies, Inc. TRV has been witnessing downward revisions over the last 60 days, evident from its  bearish Zacks Rank #4 (Sell). Catastrophe loss dragging its underwriting performance as well as lower investment income will weigh on the company’s earnings results.

Estimate Revisions: The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 15.5% downward. Estimates for 2018 have declined 0.5%. The Zacks Consensus Estimate for third and fourth-quarter 2017 reflects year-over-year decline of 63.6% and 13.2%, respectively. The full-year estimate represents a 26.7% slump.

Share Price Performance: Shares of Travelers have gained 2.9% in a year, lagging the industry’s growth of 12.2% as well as the S&P 500’s 13.5% gain.

Earnings ESP and Surprise History: Travelers has an Earnings ESP of -3.34%. This is because the Zacks Consensus Estimate is currently pegged at 87 cents, higher than the Most Accurate estimate of 84 cents. The company has a discouraging earnings track record, having failed to surpass estimates in two of the last four quarters.

Our proven model does not conclusively show if the company is likely to beat estimates when it reports third-quarter results on Oct 19. This is because Traveler’s unfavorable Zacks Rank of 4 lowers the predictive power of ESP, thereby spoiling chances of an earnings beat. Further, combined with a negative Earnings ESP, surprise prediction becomes difficult.

VGM Score: Travelers carries an unimpressive VGM Score of G. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. It presently has a Growth Score of F.

Factors Weighing on the Performance

Exposure to catastrophe events has weighed on underwriting profitability. A string of hurricanes and two Mexican tremors will be a drag on insurers’ underwriting profits.  The company expects to incur pre-tax catastrophe loss between $ 375 million and $ 750 million or $ 245 million and $ 490 million post-tax from Harvey.

Being a property and casualty insurer, Travelers will certainly not escape the disaster caused by these tropical storms and earthquakes.  Due to inclement weather events, its underwriting results have taken a severe beating. Notably, the company has been witnessing high level of catastrophe losses for a considerable period of time. Specifically, the last quarter marked the maximum catastrophe losses since 2011. Combined ratio has also been deteriorating.

In fact, the insurer has temporarily ceased its share repurchase program in the wake of the catastrophes as part of capital management strategy during a considerable stretch of catastrophic environment.

Though the Federal Reserve is gradually increasing the interest rate, it still remains low. For 2017, Travelers anticipates about $ 15-$ 20 million of lower after-tax net investment income on a quarterly basis, compared with 2016.

The company has also been incurring higher expenses, which has been heavily hurting the operating income as well as the bottom line.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Cigna Corporation CI, Cincinnati Financial Corporation CINF and Radian Group Inc. RDN.

Radian Group supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. The company delivered positive surprises in three of the last four quarters with an average beat of 3.42%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cigna Corporation offers insurance and health-related products and services in the United States and internationally. The company delivered positive surprises in all the last four quarters with an average beat of 9.98%. It carries a Zacks Rank #2 (Buy).

Cincinnati Financial deals in property and casualty insurance business in the United States. The company delivered positive surprises in all the last four quarters with an average beat of 14.97%. It carries the same bullish Zacks Rank of 2.

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Radian Group Inc. (RDN): Free Stock Analysis Report
 
Cigna Corporation (CI): Free Stock Analysis Report
 
The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
 
Cincinnati Financial Corporation (CINF): Free Stock Analysis Report
 
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