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Why Travelers Companies Stock Crushed the Market Today
Key Points
It saw a very impressive leap in profitability.
That bottom-line result was far above the consensus analyst estimate.
Venerable insurer Travelers Companies (NYSE: TRV) was a standout on the stock market Friday, thanks mainly to a blowout second quarter earnings report. It trounced analyst bottom-line estimates, which inspired enough investors to buy the company's shares to send them to a more than 9% gain on the day.
Serious underestimation
For the quarter, Travelers' revenue inched up by 1% year-over-year to almost $12.2 billion, on the back of net written premiums that slumped by roughly the same percentage to $11.5 billion. The latter figure topped the consensus analyst estimate of $11.3 billion.
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As for profitability, the insurer landed well in the black. Net income under generally accepted accounting principles (GAAP) surged 46% higher to just over $2.2 billion, or $10.26 per share. That absolutely crushed the average pundit estimate of $5.34.
In its earnings release, Travelers said the leap in net profit was due to "lower catastrophe losses, higher net favorable prior year reserve development, higher net investment income, and a higher
underlying underwriting gain."
A smooth and calm quarter
Every so often, insurers have quarters where one or several of the above factors put a real zip in the fundamentals.
While Travelers indisputably did well in the second quarter, I'd caution that the dynamics in its revenue and net written premiums weren't anything to write home about, even if that profitability jump was impressive. I wouldn't count on massive bottom-line beats to be typical going forward.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.