We came across a bullish thesis on Chubb Limited (NYSE:CB) on Substack by BlackSwanInvestor. In this article, we will summarize the bulls’ thesis on CB. Chubb Limited (NYSE:CB)’s share was trading at $277.68 as of Dec 27th. CB’s trailing and forward P/E were 11.38 and 11.43 respectively according to Yahoo Finance.
A man in a suit standing confidently in front of a wall displaying title insurance policies.
Chubb Limited (NYSE:CB), a global player in the insurance industry, has garnered attention as an attractive investment opportunity, particularly after Warren Buffett began acquiring a stake in the company in 2023. While not all of Buffett’s investments are replicable by retail investors, his deep understanding of the insurance business, including his success with Berkshire Hathaway’s own insurance operations, makes his investment in Chubb noteworthy. The company offers a broad range of insurance products, including property and casualty, life insurance, and reinsurance, operating in 54 countries. Though it derives over half of its premiums from the United States, Chubb’s diversified global presence provides a buffer against localized catastrophes, making it a resilient business.
Under the leadership of CEO Evan Greenberg, who has been at the helm since 2004, Chubb has developed a strong, stable management structure. Greenberg’s disciplined underwriting approach has been central to Chubb’s success, ensuring that premiums are priced accurately to cover risk without alienating customers. This disciplined approach is reflected in Chubb’s combined ratio, a critical metric in the insurance industry, which has consistently been under 100%. A ratio below 100% indicates that the company is earning more from its underwriting activities than it is paying out in claims, a testament to the strength of Chubb’s risk models. The company’s ability to maintain such a ratio over two decades underscores its competitive edge and operational excellence in the industry.
Valuing an insurance company like Chubb can be complex, as traditional methods such as discounted cash flow (DCF) or price-to-earnings (P/E) ratios are less reliable due to the unpredictable nature of cash flows in the sector. As a result, a price-to-book (P/B) valuation is often used. Chubb’s solid free cash flow generation, particularly in Asia, supports a favorable growth outlook. With a conservative free cash flow estimate of $12.5 billion for the next year, and using a 9% discount rate, a DCF model suggests a fair stock price of $532.67. The P/E method points to a price of $304.89, while the P/B method suggests a value of $244.74. Averaging these results places Chubb’s fair market value at approximately $360.77 per share, significantly higher than its current price of $273.16.
Chubb’s return on equity (ROE) has steadily improved, reaching near 15%, which further highlights its operational efficiency and strong management. However, there are risks associated with the investment, including the potential for leadership changes given Greenberg’s age, the geopolitical risks tied to Chubb’s significant investment in China, and the challenges posed by global climate change. Despite these risks, Chubb remains a compelling investment opportunity, offering consistent long-term growth and resilience in the face of adversity. With shares trading at a discount to their intrinsic value, Chubb represents a solid addition to any diversified portfolio, with a fair price target of $360 per share.
Chubb Limited (NYSE: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.
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Disclosure: None. This article was originally published at Insider Monkey.