Chubb Rallies 37% in a Year: More Room for Upside?

Shares of Chubb Limited CB have gained 36.6% in a year, outperforming the industry's 28.7% growth. The Finance sector and the S&P 500 Composite have risen 27.7% and 27.6%, respectively, in the said time frame. The average volume of shares traded in the last three months was 1.4 million.

A compelling portfolio, strong renewal retention, positive rate increases, strategic initiatives to fuel profitability and a solid capital position drive this Zacks Rank #3 (Hold) insurer.

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 based on a market capitalization of $108.5 billion. It has a decent history of delivering earnings surprises in the last four reported quarters, the average beat being 22.58%.

Earnings of this insurer grew 19.4% in the last five years, better than the industry average of 10.5%. The expected long-term earnings growth rate is 2.4%.

Return on equity in the trailing 12 months was 15.8%, better than the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Also, return on invested capital 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 10.3%, better than the industry average of 6.1%.

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Can CB Retain the Momentum?

Chubb is poised for long-term growth as it capitalizes on the potential of middle-market businesses (both domestic and international) as well as enhances traditional core packages and specialty products. Investments in various strategic initiatives bode well for growth. It is focusing on cyber insurance that has immense room for 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, the major component of the insurer's top line. Premiums should also benefit from commercial P&C rate increases, new business and strong renewal retention.

Investment income continues to gain from improving operating cash flow coupled with a better rate environment. Management estimates investment income to be $1.45 billion in the second quarter of 2024 and grow thereafter.

Chubb boasts a strong capital position with sufficient cash-generation capabilities that, in turn, support wealth distribution to shareholders and growth initiatives. The insurer's dividend history is impressive. It has increased dividends for 31 straight years. CB has a dividend yield of 1.3%, better than the industry average of 0.3%. This makes the stock an attractive pick for yield-seeking investors. 

Stocks to Consider

Some top-ranked stocks from the insurance industry are Heritage Insurance, Axis Capital Holdings and ProAssurance Corporation, each sporting a Zacks Rank #1 (Strong Buy).

Heritage Insurance earnings surpassed estimates in three of the last four quarters and missed in one, the average beat being 49.15%. Year to date, HRTG has rallied 132.4%.

The Zacks Consensus Estimate for HRTG's 2024 and 2025 earnings implies 10.3% and 18.1% year-over-year growth, respectively. 

Axis Capital earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 94.62%. Year to date, AXS' stock has surged 35.1%.

The Zacks Consensus Estimate for AXS' 2024 and 2025 earnings indicates 8.3% year-over-year growth each.

ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. Year to date, PRA's stock has lost 2.6%.

The Zacks Consensus Estimate for PRA's 2024 and 2025 earnings suggests 457.1% and 49.2% year-over-year growth, respectively.

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