Intrinsic value of Travelers Cos. - TRV

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$122.16

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$122.16

 
Intrinsic value

$391.74

 
Up/down potential

+221%

 
Rating

str. buy

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as TRV.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TRV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 34.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.93
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
Revenue, $m
  0
  29,617
  31,658
  33,779
  35,986
  38,281
  40,669
  43,157
  45,748
  48,449
  51,266
  54,204
  57,272
  60,475
  63,822
  67,319
  70,976
  74,801
  78,803
  82,992
  87,377
  91,969
  96,779
  101,818
  107,098
  112,632
  118,434
  124,516
  130,894
  137,583
  144,598
Variable operating expenses, $m
 
  23,965
  25,591
  27,282
  29,040
  30,870
  32,774
  34,756
  36,822
  38,975
  41,220
  43,204
  45,649
  48,202
  50,869
  53,657
  56,572
  59,621
  62,811
  66,149
  69,644
  73,304
  77,138
  81,154
  85,363
  89,774
  94,398
  99,246
  104,330
  109,661
  115,252
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  23,238
  23,965
  25,591
  27,282
  29,040
  30,870
  32,774
  34,756
  36,822
  38,975
  41,220
  43,204
  45,649
  48,202
  50,869
  53,657
  56,572
  59,621
  62,811
  66,149
  69,644
  73,304
  77,138
  81,154
  85,363
  89,774
  94,398
  99,246
  104,330
  109,661
  115,252
Operating income, $m
  4,416
  5,653
  6,067
  6,497
  6,945
  7,411
  7,896
  8,400
  8,926
  9,475
  10,046
  11,001
  11,623
  12,273
  12,952
  13,662
  14,404
  15,181
  15,993
  16,843
  17,733
  18,665
  19,641
  20,663
  21,735
  22,858
  24,036
  25,270
  26,564
  27,922
  29,345
EBITDA, $m
  9,227
  6,070
  6,488
  6,923
  7,375
  7,845
  8,335
  8,845
  9,376
  9,929
  10,507
  11,109
  11,738
  12,394
  13,080
  13,797
  14,546
  15,330
  16,150
  17,009
  17,908
  18,849
  19,834
  20,867
  21,949
  23,084
  24,272
  25,519
  26,826
  28,197
  29,635
Interest expense (income), $m
  358
  360
  662
  980
  1,311
  1,655
  2,012
  2,384
  2,772
  3,176
  3,597
  4,036
  4,494
  4,972
  5,471
  5,992
  6,537
  7,107
  7,703
  8,327
  8,979
  9,663
  10,378
  11,128
  11,913
  12,736
  13,598
  14,502
  15,450
  16,444
  17,486
Earnings before tax, $m
  4,053
  5,292
  5,405
  5,517
  5,634
  5,756
  5,883
  6,016
  6,154
  6,299
  6,449
  6,965
  7,129
  7,302
  7,482
  7,670
  7,867
  8,074
  8,290
  8,516
  8,753
  9,002
  9,263
  9,536
  9,822
  10,122
  10,437
  10,768
  11,114
  11,478
  11,859
Tax expense, $m
  1,039
  1,429
  1,459
  1,490
  1,521
  1,554
  1,589
  1,624
  1,662
  1,701
  1,741
  1,881
  1,925
  1,971
  2,020
  2,071
  2,124
  2,180
  2,238
  2,299
  2,363
  2,431
  2,501
  2,575
  2,652
  2,733
  2,818
  2,907
  3,001
  3,099
  3,202
Net income, $m
  3,014
  3,863
  3,945
  4,027
  4,113
  4,202
  4,295
  4,392
  4,493
  4,598
  4,708
  5,084
  5,205
  5,330
  5,462
  5,599
  5,743
  5,894
  6,051
  6,217
  6,390
  6,571
  6,762
  6,961
  7,170
  7,389
  7,619
  7,861
  8,113
  8,379
  8,657

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  100,245
  107,310
  114,703
  122,389
  130,383
  138,698
  147,353
  156,365
  165,754
  175,540
  185,745
  196,392
  207,506
  219,112
  231,238
  243,910
  257,160
  271,019
  285,519
  300,695
  316,583
  333,220
  350,647
  368,905
  388,036
  408,088
  429,108
  451,146
  474,254
  498,488
  523,905
Adjusted assets (=assets-cash), $m
  100,245
  107,310
  114,703
  122,389
  130,383
  138,698
  147,353
  156,365
  165,754
  175,540
  185,745
  196,392
  207,506
  219,112
  231,238
  243,910
  257,160
  271,019
  285,519
  300,695
  316,583
  333,220
  350,647
  368,905
  388,036
  408,088
  429,108
  451,146
  474,254
  498,488
  523,905
Revenue / Adjusted assets
  0.000
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
Average production assets, $m
  274
  296
  317
  338
  360
  383
  407
  432
  457
  484
  513
  542
  573
  605
  638
  673
  710
  748
  788
  830
  874
  920
  968
  1,018
  1,071
  1,126
  1,184
  1,245
  1,309
  1,376
  1,446
Working capital, $m
  0
  592
  633
  676
  720
  766
  813
  863
  915
  969
  1,025
  1,084
  1,145
  1,210
  1,276
  1,346
  1,420
  1,496
  1,576
  1,660
  1,748
  1,839
  1,936
  2,036
  2,142
  2,253
  2,369
  2,490
  2,618
  2,752
  2,892
Total debt, $m
  6,437
  11,827
  17,505
  23,408
  29,547
  35,933
  42,580
  49,501
  56,712
  64,228
  72,065
  80,242
  88,778
  97,691
  107,003
  116,736
  126,912
  137,556
  148,692
  160,347
  172,549
  185,326
  198,710
  212,732
  227,425
  242,825
  258,968
  275,893
  293,640
  312,251
  331,772
Total liabilities, $m
  77,024
  82,414
  88,092
  93,995
  100,134
  106,520
  113,167
  120,088
  127,299
  134,815
  142,652
  150,829
  159,365
  168,278
  177,590
  187,323
  197,499
  208,143
  219,279
  230,934
  243,136
  255,913
  269,297
  283,319
  298,012
  313,412
  329,555
  346,480
  364,227
  382,838
  402,359
Total equity, $m
  23,221
  24,896
  26,611
  28,394
  30,249
  32,178
  34,186
  36,277
  38,455
  40,725
  43,093
  45,563
  48,141
  50,834
  53,647
  56,587
  59,661
  62,876
  66,240
  69,761
  73,447
  77,307
  81,350
  85,586
  90,024
  94,676
  99,553
  104,666
  110,027
  115,649
  121,546
Total liabilities and equity, $m
  100,245
  107,310
  114,703
  122,389
  130,383
  138,698
  147,353
  156,365
  165,754
  175,540
  185,745
  196,392
  207,506
  219,112
  231,237
  243,910
  257,160
  271,019
  285,519
  300,695
  316,583
  333,220
  350,647
  368,905
  388,036
  408,088
  429,108
  451,146
  474,254
  498,487
  523,905
Debt-to-equity ratio
  0.277
  0.480
  0.660
  0.820
  0.980
  1.120
  1.250
  1.360
  1.470
  1.580
  1.670
  1.760
  1.840
  1.920
  1.990
  2.060
  2.130
  2.190
  2.240
  2.300
  2.350
  2.400
  2.440
  2.490
  2.530
  2.560
  2.600
  2.640
  2.670
  2.700
  2.730
Adjusted equity ratio
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232
  0.232

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,014
  3,863
  3,945
  4,027
  4,113
  4,202
  4,295
  4,392
  4,493
  4,598
  4,708
  5,084
  5,205
  5,330
  5,462
  5,599
  5,743
  5,894
  6,051
  6,217
  6,390
  6,571
  6,762
  6,961
  7,170
  7,389
  7,619
  7,861
  8,113
  8,379
  8,657
Depreciation, amort., depletion, $m
  4,811
  417
  421
  426
  430
  435
  439
  444
  449
  455
  461
  108
  115
  121
  128
  135
  142
  150
  158
  166
  175
  184
  194
  204
  214
  225
  237
  249
  262
  275
  289
Funds from operations, $m
  701
  4,281
  4,367
  4,453
  4,543
  4,637
  4,734
  4,836
  4,942
  5,053
  5,169
  5,193
  5,319
  5,451
  5,589
  5,734
  5,885
  6,043
  6,209
  6,383
  6,565
  6,755
  6,955
  7,165
  7,384
  7,615
  7,856
  8,110
  8,375
  8,654
  8,947
Change in working capital, $m
  -3,501
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  140
Cash from operations, $m
  4,202
  4,236
  4,326
  4,411
  4,499
  4,591
  4,686
  4,786
  4,890
  4,999
  5,112
  5,134
  5,258
  5,387
  5,522
  5,664
  5,812
  5,967
  6,129
  6,299
  6,477
  6,664
  6,859
  7,064
  7,279
  7,504
  7,740
  7,988
  8,248
  8,520
  8,806
Maintenance CAPEX, $m
  0
  -55
  -59
  -63
  -68
  -72
  -77
  -81
  -86
  -91
  -97
  -103
  -108
  -115
  -121
  -128
  -135
  -142
  -150
  -158
  -166
  -175
  -184
  -194
  -204
  -214
  -225
  -237
  -249
  -262
  -275
New CAPEX, $m
  0
  -23
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
Cash from investing activities, $m
  -1,460
  -78
  -79
  -84
  -90
  -95
  -101
  -106
  -112
  -118
  -125
  -132
  -139
  -147
  -154
  -163
  -172
  -180
  -190
  -200
  -210
  -221
  -232
  -244
  -257
  -269
  -283
  -298
  -313
  -329
  -345
Free cash flow, $m
  2,742
  4,158
  4,246
  4,326
  4,409
  4,496
  4,586
  4,680
  4,778
  4,880
  4,987
  5,002
  5,119
  5,240
  5,368
  5,501
  5,641
  5,787
  5,939
  6,099
  6,267
  6,443
  6,627
  6,820
  7,022
  7,234
  7,457
  7,690
  7,935
  8,192
  8,461
Issuance/(repayment) of debt, $m
  91
  5,390
  5,678
  5,903
  6,139
  6,386
  6,647
  6,921
  7,211
  7,516
  7,838
  8,177
  8,535
  8,913
  9,312
  9,733
  10,176
  10,643
  11,136
  11,655
  12,202
  12,778
  13,384
  14,022
  14,693
  15,400
  16,143
  16,925
  17,747
  18,612
  19,521
Issuance/(repurchase) of shares, $m
  -2,140
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,049
  5,390
  5,678
  5,903
  6,139
  6,386
  6,647
  6,921
  7,211
  7,516
  7,838
  8,177
  8,535
  8,913
  9,312
  9,733
  10,176
  10,643
  11,136
  11,655
  12,202
  12,778
  13,384
  14,022
  14,693
  15,400
  16,143
  16,925
  17,747
  18,612
  19,521
Total cash flow (excl. dividends), $m
  684
  9,548
  9,925
  10,229
  10,548
  10,882
  11,233
  11,601
  11,989
  12,396
  12,825
  13,179
  13,654
  14,154
  14,680
  15,234
  15,817
  16,430
  17,076
  17,755
  18,469
  19,220
  20,011
  20,842
  21,716
  22,634
  23,600
  24,615
  25,682
  26,803
  27,982
Retained Cash Flow (-), $m
  377
  -1,675
  -1,715
  -1,783
  -1,854
  -1,929
  -2,008
  -2,091
  -2,178
  -2,270
  -2,368
  -2,470
  -2,578
  -2,693
  -2,813
  -2,940
  -3,074
  -3,215
  -3,364
  -3,521
  -3,686
  -3,860
  -4,043
  -4,236
  -4,439
  -4,652
  -4,877
  -5,113
  -5,361
  -5,622
  -5,897
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  7,873
  8,209
  8,446
  8,694
  8,953
  9,225
  9,511
  9,810
  10,126
  10,457
  10,709
  11,076
  11,461
  11,867
  12,294
  12,743
  13,215
  13,711
  14,234
  14,783
  15,361
  15,968
  16,606
  17,277
  17,982
  18,723
  19,502
  20,321
  21,181
  22,085
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,549
  7,515
  7,350
  7,158
  6,940
  6,695
  6,425
  6,132
  5,817
  5,482
  5,086
  4,726
  4,358
  3,984
  3,609
  3,238
  2,875
  2,525
  2,192
  1,878
  1,589
  1,325
  1,088
  880
  700
  546
  419
  314
  231
  166
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance. The Business and International Insurance segment offers property and casualty products, including commercial multi-peril, commercial property, general liability, commercial automobile, and workers' compensation; and personal property, employers' liability, public and product liability, professional indemnity, commercial property, surety, marine, aviation, personal accident, and kidnap and ransom insurance. This segment operates through select accounts, which serve small businesses; commercial accounts that serve mid-sized businesses; national accounts, which serve large companies; first party that provides traditional and customized property insurance programs to large and mid-sized customers; and specialized distribution, which markets and underwrites its products through brokers, wholesale agents, program managers, and specialized retail agents. The Bond & Specialty Insurance segment provides fidelity and surety and general liability products, as well as others, such as property, workers' compensation, commercial automobile, and commercial multi-peril insurance products. The Personal Insurance segment offers property and casualty insurance covering personal risks, primarily automobile and homeowners insurance to individuals. The company distributes its products primarily through independent agencies and brokers. The Travelers Companies, Inc. was founded in 1853 and is based in New York, New York.

FINANCIAL RATIOS  of  Travelers Cos. (TRV)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 1.2
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.1
Price to Free Cash Flow 8.1
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 25.4%
Total Debt to Equity 27.7%
Interest Coverage 12
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 14%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 33.3%
EBITDA Margin - 3 Yr. Avg. 35.8%
Operating Margin 16%
Oper. Margin - 3 Yr. Avg. 18.4%
Pre-Tax Margin 14.7%
Pre-Tax Margin - 3 Yr. Avg. 17%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 25.6%
Eff/ Tax Rate - 3 Yr. Avg. 26.8%
Payout Ratio 25.1%

TRV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRV stock intrinsic value calculation we used $27654 million for the last fiscal year's total revenue generated by Travelers Cos.. The default revenue input number comes from 2016 income statement of Travelers Cos.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TRV stock valuation model: a) initial revenue growth rate of 7.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for TRV is calculated based on our internal credit rating of Travelers Cos., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Travelers Cos..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TRV stock the variable cost ratio is equal to 81%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TRV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Travelers Cos..

Corporate tax rate of 27% is the nominal tax rate for Travelers Cos.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TRV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for TRV are equal to 1%.

Life of production assets of 0.8 years is the average useful life of capital assets used in Travelers Cos. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TRV is equal to 2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $23221 million for Travelers Cos. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 278.58 million for Travelers Cos. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Travelers Cos. at the current share price and the inputted number of shares is $34.0 billion.


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COMPANY NEWS

▶ Travelers Is Still in an Uptrend   [Apr-27-17 08:50AM  TheStreet.com]
▶ Verizon, United Technologies Prop Up DJIA on Wednesday   [Apr-26-17 04:01PM  24/7 Wall St.]
▶ 9 Stocks Primecap Management Continues to Buy   [Apr-20-17 04:42PM  GuruFocus.com]
▶ Travelers Sinks After Missed Earnings   [08:55AM  24/7 Wall St.]
▶ Top 5 Earnings to Watch on Thursday   [10:40AM  24/7 Wall St.]
▶ US Market Indexes Start the Week Higher   [Apr-10-17 06:10PM  GuruFocus.com]
▶ 8 Stocks With Rising Revenue and EPS   [Apr-03-17 05:11PM  GuruFocus.com]
▶ US Market Indexes Gain on Wednesday   [Mar-29-17 06:49PM  GuruFocus.com]
▶ UnitedHealth, Travelers Sink DJIA Wednesday   [04:01PM  24/7 Wall St.]
▶ US Market Indexes Lower With Losses Led by Energy Stocks   [Mar-23-17 05:56PM  GuruFocus.com]
▶ Travelers to Acquire UK-Based Simply Business   [Mar-13-17 08:30AM  Business Wire]
▶ Insuring Your Portfolio With Insurance Stocks   [11:00AM  at Insider Monkey]
▶ [$$] Travelers forces UK start-up to scrap umbrella logo   [Feb-24-17 01:24PM  at Financial Times]
▶ U.S. stocks open marginally higher   [09:32AM  at MarketWatch]
Stock chart of TRV Financial statements of TRV
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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