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About Chubb
I’ve been bitten by the Buffett Bug, and with the most recent 13F train rolling into town, Mr. Buffett’s holding company by the name of Berkshire Hathaway has updated its stock portfolio holdings and while most of the portfolio is littered with the usual, expected holdings from previous quarters (and years and decades, for that matter), with some periodic, minor changes in sizing of said positions (i.e., trimmed down some stakes in order to take some profit and/or boosted some stakes when share prices of quality stocks went down), plenty of headlines were made today as the portfolio reported a rather sizable stake in a global diversified insurance company headquartered in Zurich, Switzerland by the name of Chubb Limited.
Interestingly, this isn’t Buffett’s first rodeo with insurance companies, as he has a proven track record of being, in one way or another, whether through a simple equity investment or by means of a lofty billion-dollar acquisition, financially intrigued by the insurance business, with Berkshire Hathaway wholly acquiring insurance conglomerate Alleghany for $11.6 billion in recent years, and well before this acquisition, owning GEICO as well, and now, Chubb through a more traditional, liquid, direct equity investment.
Chubb is an insurance company that is a jack of all claims and a master at many, as it provides a variety of insurance packages and services within a broad assortment of contexts, including but not limited to cyber, marine, management liability, marine, auto, natural disaster and plenty, plenty, did I mention plenty of other plans and associated policies, serving individuals, families, businesses and practically any and every entity that wants and/or needs to be insured in order to sleep well at night, directly competing with the likes of other prominent insurance providers such as Progressive (shoutout to Flo), Marsh McLennan, Arthur J. Gallagher & Co., among a few others.
Speaking of sleeping well at night, with an apparent overall increase in natural disasters, theft, reckless driving and many other daily threats we face as humans, this can most certainly be deemed an objective positive for a company such as this one, as Chubb Limited is like the reverse of one of Christopher Wallace’s (better known as Biggie, or Notorious B.I.G.) famous mantras, “Mo money, mo problems,” as Chubb Limited’s very existence can be summarized as “Mo problems, mo money,” as this firm has much to gain from both being able to offer new services as new societal problems arise but also in that it has the freedom to charge more as perceived risk goes up, keeping margins well intact.
As a brief example, if there have reportedly been more car accidents in Austin, Texas, those that reside in Austin and use Chubb’s automobile insurance will more than likely be charged more through their premiums being that it can be said that the risk that the company is assuming is greater than it was before, and with that, the rationale or justification is that it needs more compensation (in the form of premiums, of course) to adequately assume said risk.
Bada bing bada boom.
Now, let’s get right into this company’s primary financial statement and look at some other helpful metrics and ratios so as to ultimately put an opinion together as to whether or not we think Buffett, one of the greatest investors of all time, is on the money with his newly boosted stake in Chubb Limited.
Chubb’s stock financials
According to its current market capitalization, Chubb Limited is an enormous, $103 billion company accompanied with its associated share price of $263.72 along with its prevailing price-to-earnings (P/E) ratio of 11.23 all while also paying out an annual dividend to its shareholders of $3.44, kicking this stock analysis article into a good start.
Specifically, the company’s price-to-earnings ratio being markedly less than the standard, fair value benchmark of 20, initially indicates that Chubb’s share price (NYSE: CB) is undervalued relative to its cumulative, sum-of-the-parts value, and that checks out given that Mr. Buffett is basically the godfather of finding well performing, quality companies at attractively cheap prices.
I am also going to assume (to a certain degree, that is) that Chubb doesn’t struggle all too much when it comes to generating positive free cash flow, primarily because it is in the business of collecting premiums from a diverse range of typically consistent payers and sources, which can likely support the firm’s relatively attractive dividend gifted to its shareholders each quarter.
It literally pays to diversify when you’re a company like Chubb Limited.
Onto the company’s balance sheet, Chubb’s executives are in charge of managing, monitoring and properly deploying just about $231 billion in terms of total assets along with around $171.2 billion in terms of total liabilities, maintaining a great deal more on the assets side of the equation, offering myself a bit of comfort in knowing that if literal Armageddon occurred, Chubb could still apparently cover its outstanding liabilities and other financial obligations in this ever so uncertain world.
Regarding the company’s income statement, Chubb’s revenues since 2019 have been moving in the right direction, no doubt about it, reporting revenues in the amount of $34.2 billion in 2019, rising the following year to just south of $36 billion in 2020, $40.9 billion in 2021, just north of $43 billion in 2022, culminating into its latest reported figure of $49.7 billion, as reported in 2023, and with all of the risk-related products and services and markets thereof it continues further penetrating as well as the natural offerings that will arise out of this world becoming exceedingly more dangerous and risky, I don’t count many reasons as to why this company’s revenues can’t continue growing at this rate in the years to come, and I am also definitely enjoying the proven track record Chubb has continuously built upon in recent history.
Moving right over to the shape of the company’s cash flow statement, Chubb’s total cash from operations is absolute music to my eyes.
That is not at all how that expression goes, however, we should all just band together and allow an exception be made this one time, as the firm’s total cash from ops (again, measured during and between 2019 and 2023) have risen each and every year, starting at a relative base of $6.3 billion in 2019, making its way towards the top to its latest reported figure of $12.6 billion, as reported in 2023, and doubling one’s total cash from operations during this truly short period of time is nothing short of impressive and speaks highly to the company’s ability to go above and beyond an inflationary-riddled, recessionary period and eek out more profit from its business operations as well as core product offerings and services.
Chubb’s stock fundamentals
While on the subject of Chubb as it pertains to profitability, they are proven best friends, as according to Charles Schwab’s platform, the company’s net profit margin is a healthy 18.26%, and in painting a more transparent picture, primarily as it relates to its peers, its core competitors tout net profit margins that just aren’t as spiffy (yeah, I used that word, what’s it to ya?) or impressive, with, for instance, Marsh McLennan’s net profit margin being reported as a strong yet lagging 17.07%, not to mention Progressive’s comparably unimpressive 8.90%, others remaining well below that of Chubb’s as well, not to also neglect the fact that Chubb’s TTM returns on the assets it deploys have been trending upwards in recent years as well.
Should you buy Chubb stock?
I get it, a lot of you might be thinking that I am really into this company and its stock (NYSE: CB) because, hey, if Warren Buffett is all of the sudden interested in putting a lot of his firm’s investable capital into this company’s shares, why shouldn’t I?
To which I would reply, while every single investor’s ears and eyes tend to perk up when there’s news of Buffett making any sort of alterations to his precious stock portfolio, he was the catalyst and Chubb’s track record of proven execution and performance excellence is what ultimately cemented my decision to offer this company’s stock a “buy” rating.
Its shares are undervalued, its balance sheet is in a fortified state of being, its revenues and cash flows have been growing at a strong annualized rate and its net profit margin is actually something to write home about, especially when pinning it up against that of the competition’s respective profit margins.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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