Compared with other big insurance names such as Allstate (ALL) , Travelers has consistently been the leader for regularly repurchasing its shares at low valuations. This has been like an extra dividend for its shareholders on top of the annual cash dividend of $2.20 the company currently offers.
For that reason shares of TRV, at around $92, look like a screaming buy. Shares are up 2.6% for the year to date while Allstate, at $61, are up over 12%, suggesting that a powerful stock buyback program like Travelers' doesn't always guarantee an outstanding share price performance year after year.
Yet, it's important to point out the magnitude of this insurance giant's buyback program. Since 2006 the number of shares outstanding was reduced by about 50%, positively impacting the stock's dilution which contributed to a 271% increase in the price-per-share since the post financial crisis lows in 2008.
According to spokesman Patrick Linehan, Travelers repurchased 9.5 million shares during the second quarter and 18 million shares for the year to date at a total cost of $876 million and $1.581 billion, respectively. Travelers has $3.234 billion of remaining capacity under its existing share repurchase authorization.
Linehan also noted CEO Jay Fishman's comments to shareholders last year. At that time Fishman said: “We will continue to take the steps that we believe will help us improve returns consistent with our long-held objective of producing mid-teens operating return on equity over time, the lens through which we view virtually every decision we make.”
Here is the 10-year chart below of Traveler's share price. The orange line representing its quarterly stock buybacks correlates well with the ebullient price movement of its stock.
With a trailing price/earnings ratio of less than 9, the stock looks inexpensive -- especially when compared to Allstate's P/E of more than 13. Factoring in the ongoing massive stock buyback program along with Travelers 20% operating margin leads to the conclusion that a 12-month price target of $110 is realistic.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates TRAVELERS COS INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate TRAVELERS COS INC (TRV) 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 revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, increase in stock price during the past year and attractive valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income." You can view the full analysis from the report here: TRV Ratings Report