Travelers Puts Premium on Buybacks

06/01/2011 11:00 am EST


David Fried

Editor, The Buyback Letter

The blue-chip insurer has reduced its shares outstanding by nearly a fifth in the last year. Ad giant Omnicom is also thriving and buying, writes David Fried of The Buyback Letter.

We have bought and sold Travelers (TRV) twice in 2010, and now it has come to the top of our filters again.

As you will recall, Travelers is a leading provider of property and casualty insurance for auto, home, and business. A Fortune 100 company that has been in business for 150 years, Travelers has more than 30,000 employees, and is a component of the Dow Jones Industrial Average.

It issued the first automobile insurance policy in 1897. It is the third-largest writer of commercial US property-casualty insurance, and the second-largest writer of US personal insurance through independent agents.

Travelers operates in a crowded industry, as one of an estimated 2,400 property and casualty insurers in the US. But it stands out based on its size, solid finances, and good cash flow.

Insurers take premiums from clients and invest them in stocks and bonds to provide the cash necessary to meet future obligations. When it works well, insurers earn large enough returns to invest the surplus and enhance profits.

In general, property and casualty insurers got slammed during the first quarter by catastrophic losses from the earthquakes in Japan and New Zealand, US winter storms, and floods in Australia. Travelers was not hit as hard, and posted earnings above estimates, reporting a 30% increase in net income for the first quarter from a year ago.

In the last 12 months, management has reduced shares outstanding by a whopping 18.4%.

Omnicom Trumpets Global Gains
Meanwhile, marketing and corporate-communications giant Omnicom Group (OMC) has reduced shares outstanding by 7.5% over the same span.

Omnicom has branded networks and numerous specialty firms that provide advertising, strategic media planning and buying, digital and interactive marketing, direct and promotional marketing, public relations, and other specialty communications services to more than 5,000 clients in more than 100 countries.

As a strategic holding company, Omnicom manages a portfolio of global market leaders via three global advertising agency networks, BBDO, DDB, and TBWA; numerous leading national advertising agencies; a global network of more than 175 marketing-services companies; and a media group, Omnicom Media Group, that includes two of the world's premier providers of media planning and buying services.

These companies offer services in more than 30 marketing and communications disciplines across more than 200 strategic brand platforms.

The company had a good first quarter, with earnings up 24%, spurred in part by international sales growth. Total revenue climbed 8%, powered by a 13% lift in sales overseas.

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