Chubb Rallies 29% YTD but Lags Industry: How to Play the Stock

Shares of Chubb Limited CB have rallied 29.1% year to date, outperforming the Finance sector’s increase of 24.1% and the S&P 500 composite’s rise of 26.5%. It, however, underperformed the industry’s increase of 34.3%.CB shares are trading well above the 50-day moving average, indicating a bullish trend. With a capitalization of $116.8 billion, Chubb is one of the world’s largest providers of property and casualty (P&C) insurance and reinsurance and the largest publicly traded P&C insurer.Image Source: Zacks Investment ResearchPositive Analyst SentimentEight of the 11 analysts covering the stock raised their estimates for the current year, while six of the 10 analysts raised the same for the next year. The Zacks Consensus Estimate for Chubb’s 2024 and 2025 earnings has moved 2.2% and 0.5% north, respectively, in the past 30 days, reflecting analyst optimism. CB’s Return on CapitalReturn on equity in the trailing 12 months was 15.5%, better than the industry average of 7.6%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.Also, return on invested capital (ROIC) has been increasing over the last few quarters amid capital investments made over the same time frame. This reflects CB’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 10.1%, better than the industry average of 5.8%.Factors Favoring CBChubb remains focused on capitalizing on the potential of middle-market businesses (both domestic and international) as well as enhancing traditional core packages and specialty products for long-term growth. The insurer is also making strategic investments in various initiatives that will accelerate growth. Chubb pursues strategic mergers and acquisitions to diversify its portfolio, add capabilities and synergies and expand its geographic footprint. Acquisitions have also improved premium revenues. Premiums should also benefit from commercial P&C rate increases, new business and strong renewal retention. Though the Fed has started lowering the interest rate, investment income should benefit from improving operating cash flow. Chubb has a strong capital position and sufficient cash-generation capabilities, which support wealth distribution to shareholders and growth initiatives. Being a P&C insurer, CB is exposed to catastrophe events, which induce volatility in underwriting profitability and affect the combined ratio. Given the uncertainty surrounding the magnitude of cat loss, higher losses could drain earnings. Recently, Chubb estimated losses from Hurricane Milton between $250 million and $300 million pre-tax and $208-250 million after-tax, net of reinsurance and including reinstatement premiums. These losses will weigh on the profitability of its commercial and personal property and casualty insurance businesses, as well as its reinsurance operations, in the fourth quarter of 2024.Also, Chubb’s leverage and times interest earned compare unfavorably with the industry,CB Shares ExpensiveCB shares are trading at a price-to-book multiple of 1.66, higher than the industry average of 1.62Image Source: Zacks Investment ResearchHowever, CB shares are cheaper when compared with other insurers like The Travelers Companies TRV and The Allstate Corporation ALL. Average Target Price for CB Suggests an UpsideBased on short-term price targets offered by 23 analysts, the Zacks average pricetarget is at $301.22 per share. The average suggests a potential 4.4% upside from Tuesday’s closing price.Image Source: Zacks Investment ResearchParting ThoughtsChubb’s market-leading position, compelling portfolio, strong renewal retention, positive rate increases, solid capital position and better return on capital pave the way for long-term growth. The insurer’s dividend history is impressive. It has increased dividends for 31 straight years. CB has a dividend yield of 1.6%, better than the industry average of 0.2%.However, given its premium valuation, cat loss weighing on its performance, projected decline in bottom-line in 2024, and unfavorable leverage and times interest earned, we prefer to stay cautious on this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Travelers Companies, Inc. (TRV): Free Stock Analysis Report Chubb Limited (CB): Free Stock Analysis Report The Allstate Corporation (ALL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks