We came across a bullish thesis on Chubb Limited (CB) on Substack by BlackSwan Investor. In this article, we will summarize the bulls’ thesis on CB. Chubb Limited (CB)’s share was trading at $274.78 as of Jan 30th. CB’s trailing and forward P/E were 12.21 and 11.53 respectively according to Yahoo Finance.
An experienced property and casualty insurance agent at a client’s home, explaining the benefits of the company’s homeowners’ insurance policies.
Chubb recently reported quarterly earnings of $6.02 per share, surpassing the Zacks Consensus Estimate of $5.46 per share, reflecting strong performance across all its segments. The company’s core P&C segment, which accounts for approximately 84% of net premiums written in 2024, showed steady growth, with a 7.7% increase year-over-year. Net income for the P&C segment came in at $5.8 billion, and the combined ratio remained strong at 86.6%, a slight improvement from last year. This segment’s consistent growth underscores Chubb’s robust foundation in its core business.
The Life Insurance segment, representing about 16% of net premiums written, was another standout, with a 15.7% growth over the previous year. This growth was driven by Chubb’s strong presence in Asia, positioning the Life Insurance segment as a key growth driver for the company. The segment contributed $1.1 billion in net income, further solidifying its importance to Chubb’s overall financial health.
Chubb’s Investment segment, which holds the bulk of its assets for paying out claims, also performed exceptionally well. Pre-tax net investment income rose 20.1% from the previous year, amounting to $5.93 billion. This growth was fueled by a strategic shift toward a private portfolio, which is expected to continue contributing positively to Chubb’s income.
Despite the strong performance, Chubb is facing a setback from the recent wildfire losses, expected to result in a $1.5 billion hit to free cash flow. However, given the company’s previous ability to absorb large losses, such as those from Hurricane Ian and Hurricane Milton, Chubb is well-positioned to manage this challenge. This impact has been accounted for in the updated free cash flow projections, reflecting a more conservative outlook.
Chubb’s updated valuation, based on a DCF method using a 7% free cash flow growth rate, suggests an intrinsic value of $747.97 per share. The P/E method, with a projected 6% EPS growth rate, values the stock at $288.74 per share, and the P/B method, applying an industry median P/B of 1.5, gives a price of $239.66 per share. Averaging these methods results in a fair market price of $425.46 per share. With a 20% margin of safety, a purchase price below $354.55 per share is recommended, offering a substantial discount relative to its current price.
Chubb Limited (CB) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held CB at the end of the third quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of CB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.