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Understanding Chubb’s Premium Valuations

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Higher multiple

Chubb’s (CB) PE (price-to-earnings) ratio is 14.37x on an NTM (next 12-month) basis. The average for its competitors was 13.36x. So CB has premium valuations. Travelers (TRV), Allstate (ALL), and Arch Capital Group (ACGL), which are Chubb’s competitors, have PE ratios on an NTM basis of 13.9x, 11.9x, and 14.3x, respectively.

In 4Q17, Chubb saw provisional tax benefits of $450 million due to the new US tax reform legislation, which could be the main reason for its premium valuations. The company’s book value per share rose 1.5% in 4Q17 compared to 3Q17. Compared to December 31, 2016, it rose 6.5%.

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Quarterly dividends, price target

Chubb increased its quarterly dividend payouts in 2017, which might have created a positive image in the eyes of market participants. It declared a quarterly payout of $0.69 per share in February 2017, and in May 2017, it declared $0.71 per share. In August 2017, it again declared $0.71 per share, and in November 2017, it declared a quarterly payout of $0.71 per share, which was paid in January 2018.

Chubb’s valuations could further improve in 2018, mainly because of its one-year price target. Wall Street analysts have given it a one-year target of $164.13, which reflects a rise of 5.1% from the current price of $156.15.

Chubb’s PE (price-to-earnings) ratio on an LTM (last 12-month) basis is 19.1x. Its peers (XLF) Allstate (ALL), Arch Capital Group (ACGL), and Travelers (TRV) have PE ratios of 13.7x, 29.4x, and 17.4x, respectively, on an LTM basis.

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