Dr.Sam

In this article I am going to analyze Travelers Companies Inc. company, which its ticker is (TRV) based in its earning per share and its (P/E) ratio to see how much its stock will worth in the 2027.

First, let see how does TRV’s EPS did in the past six year starting form 2017 in order to estimate its growth rate, as shown below:

As we can see from the above chart that EPS is fluctuated from 1.05 to 1.89 with massive up and downs, where there is no clear pattern that I can predicate, and it is hard to come up with a growth rate for data moving sharply in both directions like that, which will let me change my approach in analyzing this company by using its sales and (P/S) ratio.

Now, let see how does TRV’s sales did in the past six year starting form 2017 in order to estimate its growth rate, as shown below:

As we can see from the above chart that TRV’s Sales increasing from year 2017 where it was 28.64 Billion until it reached 36.25 Billion in 2022 with moving in uptrend without single drop, with sales growth rate equal to 4.83%.

Now that we have the growth rate of sales for TRV in the last six years, we are going to use this growth rate to estimate what will its sales be in 2027 ,which is five years from now by applying the following formula:

FV=PV(1+i)ⁿ

• Where
• PV = TRV sales in year 2022 = 36.25 Billion
• i = growth rate of PG EPS estimated above = 4.83%
• n = years of investment = 5 years in 2027

By substitute the numbers estimated early in the above formula, I end up with estimated TRV’s sales in year 2027 equal 45.89 Billion .

Now, I have to see what was (P/S) ratio that TRV did have in the last six years, which as shown below:

Now we can estimate two scenarios for TRV’s stock price which is Bull market and the bear market.

For Bull market , I am going to take the highest (P/S) ratio which was 1.16 in year 2019, to see what will be the price of TRV stock in 2027:

Bull market TRV Stock’s price in 2027= (1.16)*(45.89) = 53.23$.

For Bear market, I will take the lowest (P/S) ratio which was 0.83 in year 2020, to see what will be the price of TRV stock in 2027.

Bear market PG Stock’s price in 2027= (0.83)*(45.89) = 40.57$.

As of writing this article, TRV’s stock price is 193.87$ which is higher than both scenarios by 377%. Therefore, based in Travelers companies Inc. and sales projection for the year 2027, I believe investing in this stock is too risky since the stock price is considered overvalued compared to the sales that Travelers companies Inc. expected to generate in year 2027.

But this is not the end of the story, since TRV is an Insurance company it has the financial structure like financial institutions and its analysis can be done in different form than other companies. Therefore, I am going to analyze its stock based in its Book Value which is (Equity/Total of common Shares).

In this same period used above which started from 2017 to 2022, TRV share holders equity in crease from 23,731 Million to 28,887 Million with growth rate 4%.

Now that we have the growth rate of share holder equity for TRV in the last six years, we are going to use this growth rate to estimate what will its equity (book value) be in 2027 ,which is five years from now by applying the following formula:

FV=PV(1+i)ⁿ

• Where
• PV = TRV Book value in year 2022 = 28,887 million
• i = growth rate of TVR equity estimated above = 4%
• n = years of investment = 5 years in 2027

By substitute the numbers in the above formula, I end up with TRV’s book value in year 2027 equal 35,145 Million.

By going back to TRV financial statement, we can find that the average total share outstanding is equal to 234.35 million, and by applying the following equation :

Where:

• Book value of 2027 = 35,145 Million
• Average shares outstanding = 234.35 Million

I end up with Travelers companies Inc. stock price in 2027 to be 149.97$ which is still below the price of the stock that mentioned above which is 193.87$. Therefore, I can positively end up with the same conclusion that Travelers companies Inc’s stock is overvalued and it does not worth investment specially for the conservative investors.