KBW Downgrades Travelers Companies On Valuation

Insurance company Travelers Companies Inc TRV is likely to continue leverage its notable competitive advance, brand, and analytical capabilities to realize long-term success. However, the stock's current premium to its historical norm implies investors can find a greater return in other names, according to Keefe, Bruyette & Woods.

The Analyst

Keefe, Bruyette & Woods' Meyer Shields downgraded Travelers Companies from Outperform to Market Perform with an unchanged $153 price target.

The Thesis

Shares of Travelers Companies have gained 25.9 percent in 2019, which is more than double the 12.7-percent return seen in the S&P 500 index, Shields wrote in the note. The gains imply the stock is trading at 12.8 times 2020 estimated EPS and at 161 percent book value per share. This compares to the long-term average of 10.6 times forward EPS and 126 percent of book value per share.

Shields said the stock's valuation accurately reflects the company's improving standard commercial line rates. Expectations for bigger rate increases within the specialty insurance and reinsurance lines implies investors could see superior returns elsewhere.

In conjunction with the downgrade, the research firm lowered its 2019 EPS estimate from $11.40 to $11.35 while 2020 estimates move lower from $11.75 to $11.35 due to adverse weather conditions and declining interest rates.

Price Action

Shares of Travelers Companies traded around $148.66 Thursday afternoon.