The Travelers Companies, Inc. (TRV) provides commercial and personal property and casualty insurance products and services internationally. The company operates through three segments: Business Insurance; Bond & Specialty Insurance; and Personal Insurance. On the other hand, Cincinnati Financial Corporation (CINF) provides property-casualty insurance products in the United States. The company operates through five segments: Commercial Lines Insurance; Personal Lines Insurance; Excess and Surplus Lines Insurance; Life Insurance; and Investments.
According to Verisk (VRSK) and the American Property Casualty Insurance Association, Private U.S. property and casualty insurers saw a $5.60 billion net underwriting loss in the first nine months of 2021 due to rising non-catastrophic losses and high insured catastrophe-related losses. However, the industry saw a 19.6% year-over-year increase in net income after taxes of $42.10 billion in nine months of 2021, owing to premium growth, investment gains, and ongoing economic recovery. According to a Mordor Intelligence report, the U.S. property and casualty insurance market is expected to grow at a CAGR of 6% by 2025. Therefore, both TRV and CINF should benefit.
TRV has gained 15.2% year-to-date, while CINF has returned 12.3%. Which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On January 12, 2022, TRV announced that it had expanded its telematics auto insurance offerings with the launch of IntelliDrivePlus. Michael Klein, Executive Vice President at TRV, said, "Our original telematics program, IntelliDrive, grew by 50% during the last year, making it clear that consumers are increasingly comfortable with pricing that reflects their driving behaviors. IntelliDrivePlus builds on that momentum and offers our customers more options to personalize their insurance. "
On January 28, 2022, CINF’s board of directors declared a 69-cents-per-share regular quarterly cash dividend, increasing by 10% sequentially. Steven J. Johnston, chairman, president, and CEO, said, “We believe it's important to define and execute strategies that we think will lead to profitable growth and financial strength, allowing us to reward shareholders in the near-term through dividend payments and in the long-term through share price appreciation.”
Recent Financial Results
TRV’s total revenue increased 7% year-over-year to $9.01 billion for the fiscal fourth quarter ended December 31, 2021. The company’s net income came in at $1.33 billion, representing a 2% year-over-year increase. Also, its EPS came in at $5.37, up 5% year-over-year.
CINF’s total revenues grew 23% year-over-year to $3.32 billion for the fiscal fourth quarter ended December 31, 2021. The company’s net income increased 40% year-over-year to $1.47 billion. Also, its EPS came in at $9.04 million, up 40% year-over-year.
Past and Expected Financial Performance
TRV’s revenue and EPS grew at CAGRs of 4.8% and 16%, respectively, over the past three years. Analysts expect TRV’s revenue to increase 6.3% for the quarter ending March 31, 2022, and fiscal 2022. The company’s EPS is expected to grow 23.4% for the quarter ending March 31, 2022, and 12.9% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 8.9% per annum over the next five years.
On the other hand, CINF’s revenue and EPS grew at CAGRs of 21.2% and 117.9%, respectively, over the past three years. The company’s revenue is expected to decrease 16.8% for the quarter ending March 31, 2022, and 20.8% in fiscal 2022. Its EPS is expected to grow 3.6% for the quarter ending March 31, 2022, and 5.4% in fiscal 2023. CINF’s EPS is expected to grow at a rate of 14.4% per annum over the next five years.
Profitability
TRV’s trailing-12-month revenue is 3.62 times what CINF generates. However, CINF is more profitable with a gross profit margin and net income margin of 39.74% and 30.59% compared to CINF’s 27.21% and 10.52%, respectively.
Furthermore, TRV’s ROE, ROA, and ROTC of 24.66%, 7.90%, and 18.11% are higher than CINF’s 12.61%, 2.53%, and 8.30%, respectively.
Valuation
In terms of trailing-12-month non-GAAP P/E, CINF is currently trading at 23.61x, 67.8% higher than TRV’s 14.07x. Moreover, CINF’s trailing-12-month EV/S ratio of 2.66x is 75% higher than TRV’s 1.52x.
So, TRV is relatively affordable here.
POWR Ratings
TRV has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, CINF has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
TRV has a C grade for Growth, consistent with analysts’ expectations that its revenue will increase in the upcoming months. On the other hand, CINF has a D grade for Growth, in sync with analysts’ expectations that its revenue will decline in the near term.
Of the 29 stocks in the Insurance - Life industry, TRV is ranked #5. However, CINF is ranked #38 out of 54 stocks in the Insurance - Property & Casualty industry.
Beyond what I’ve stated above, we have also rated the stocks for Stability, Quality, Momentum, Sentiment, and Value. Click here to view all the TRV ratings. Also, get all the CINF ratings here.
The Winner
The property and casualty insurance industry are well-positioned to grow with the continued economic recovery. While both TRV and CINF should benefit, TRV is a better buy because of its lower valuation, higher profitability, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the other top-rated stocks in the Insurance - Life industry here. Also, click here to access all the top-rated stocks in the Insurance - Property & Casualty industry.
TRV shares were unchanged in after-hours trading Monday. Year-to-date, TRV has gained 17.30%, versus a -6.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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