NEW YORK (TheStreet) -- If you invest on fundamentals, the insurance company Chubb (CB - Get Report) is the type of stock you want in your portfolio.
Trading around $92.65 per share on Thursday, down 4% for the year to date, Chubb has a current price-to-earnings ratio of 11.1 and a price-to-book value ratio of 1.4.
The company was founded in 1882 as a marine underwriting business in the seaport district of New York City but has grown from there to approximately 10,000 employees operating in 27 countries in North America, Europe, South America and the Pacific Rim. It utilizes 8,500 independent agents and brokers to sell its products.
Chubb offers a diverse product line to businesses and individual customers. To businesses it offers professional and management liability insurance, property and casualty insurance, accident and health insurance and surety bonds. It is also known to offer tailored solutions to fit specific industry needs. For individuals it offers coverage for auto, home, watercraft, valuables and excess liabilty. Chubb has an excellent reputation for customer service and it has wide brand recognition.
With a market capitalization of $22.5 billion, Chubb has a disciplined management team. It is profitable, has a strong balance sheet, a low level of debt and return on equity of 13%.
The company has slowly been returning cash to shareholders. In 2013, Chubb repurchased 5% of its stock. It also offers a consistent dividend of 50 cents per share, a 2.2% yield. The company increased its dividend by 13.6% in the first quarter. It has had an annual dividend increase in each of the past 32 years.
But the Chubb story isn't perfect.
Share price is down 4% year to date compared to a gain of 13.2% by the S&P 500 SPDR ETF (SPY). Some analysts feel Chubb has sub par growth in net income. In first quarter 2014, Chubb had its first earnings-per-share miss in recent memory when it announced net income per share of $1.80, compared to $2.48 in the first quarter of 2013. Chubb blamed the earnings misstep on the adverse weather in the U.S. and an unusual and higher level of expected claims due to fire loss.
Chubb has estimated 2014 earnings per share of $7.38 and estimated 2015 earnings per share of $7.90. Many analysts feel the stock is worth $100 per share, an 8% premium to the current price. In a May 24 Barron's article, Artisan Partners' David Samra recommended Chubb as a buy and said he feels the stock is worth twice its book value.
When shopping for a stock, you want to buy a great company at a great price. Chubb is just that type of stock.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates CHUBB CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHUBB CORP (CB) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Although CB's debt-to-equity ratio of 0.20 is very low, it is currently higher than that of the industry average.
- Net operating cash flow has increased to $372.00 million or 24.41% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 4.59%.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Insurance industry and the overall market on the basis of return on equity, CHUBB CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- CB, with its decline in revenue, slightly underperformed the industry average of 7.6%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: CB Ratings Report