Investing.com — Shares of Travelers (NYSE: NYSE:TRV) climbed 1% as Piper Sandler shifted its stance on the insurance giant, upgrading the stock from Neutral to Overweight and significantly raising the price target from $259.00 to $310.00. The upgrade came on the heels of Travelers’ robust fourth-quarter performance, which surpassed the analyst’s expectations.
Piper Sandler’s analyst Paul Newsome attributed the upgrade to several key factors, including Travelers’ stronger-than-anticipated fourth-quarter results and increased earnings per share (EPS) estimates. According to Newsome, “After a careful review, we are responding to Travelers’ report of stronger-than-expected 4Q24 results and increasing our EPS estimates. We now think the stock is inexpensive.”
Newsome highlighted the sustainability of high margins in commercial lines and a quicker recovery in personal lines profitability than previously anticipated. Travelers has managed to lower its combined ratio in Business Insurance to 94.2% in FY24, a significant improvement from previous highs of around 101%. Personal lines also showed marked improvement, with a combined ratio of 80.7% compared to 86.8% in the same quarter of the previous year. Price increases are expected to continue this positive trend.
Additionally, concerns about reserve issues that had been prevalent in recent years appear to be subsiding. “The company has not had full year unfavorable reserve development since 2019 and has averaged around 1.4 points of favorable development since, but the level of favorable reserve development has declined,” Newsome noted. The fourth-quarter results indicated that reserve development at Travelers may have stabilized, with 2.4 points of favorable development compared to a consensus of 0.7 points.
Furthermore, Newsome raised EPS estimates above the consensus, forecasting $24.85 for 2025 and $26.30 for 2026, compared to the consensus estimates of $19.96 and $23.35, respectively.
Lastly, Newsome suggested that Travelers could benefit from the broader industry trend of improving profitability in personal lines due to a hard market in this sector. Given that personal lines account for roughly 40% of Travelers’ premium, improvements in auto and home insurance underwriting profitability could significantly impact the company’s earnings.
The analyst’s optimistic outlook on the stock reflects a belief in the company’s potential for sustained profitability and growth, positioning Travelers favorably within the property-casualty insurance market.
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