Travelers Companies Is Likely ‘Overearning,’ Says Bearish Analyst

While Travelers Companies Inc’s (NYSE:TRV) stock has rallied, driven by large earnings beats, the company is likely “overearning,” according to BofA Securities.

The Travelers Companies Analyst: Analyst Joshua Shanker maintained an Underperform rating and price target of $333.

The Travelers Companies Thesis: The earnings beats have been driven mostly by segments where the company "is losing premium and/or market share," Shanker said in the note.

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The analyst said profits in auto and home insurance reached record highs, mostly because of recent interest rate hikes and fewer natural disasters. He added, however, that Travelers Companies is losing customers, with auto and homeowners policies falling by 3.1% and 4.0% over the past year.

While competitors like Allstate Corp (NYSE:ALL) and Progressive Corp (NYSE:PGR) are growing, Travelers Companies’ shares trade at a higher valuation, Shanker noted.

Over half of the company’s past underwriting profits came from bond insurance and workers’ compensation, the analyst stated. He added, however, that:

• Bond Insurance: These lines make high profits during good economic times but face severe, sudden losses during downturns.
• Workers’ Compensation: A decade of unusual industry profitability is slowing, and Travelers’ premium volume in this line has dropped 12% since 2019.

Historically, Travelers grew earnings per share by buying back its own stock at low prices, but the stock price is currently high, making buybacks more expensive and adding less value, Shanker said.

TRV Price Action: Travelers Companies shares declined 0.93% to $385.90 at the time of publication on Monday.

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