Kalkine Media explores financial stocks after interest rates rise again

September 23, 2022 05:00 AM PDT | By Rupam Roy
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  • The WRB stock added more than 17 per cent YTD.
  • The Travelers Companies, Inc.'s (NYSE: TRV) revenue shot up five per cent YoY in the latest quarter.
  • Charles Schwab Corporation (NYSE: SCHW) noted a 13 per cent growth in its fiscal 2022 second-quarter revenue.

The bank and insurance stocks are impacted because of the soaring interest rate hikes by the global central banks. Some of the stocks from the bank and insurance segment include W.R. Berkley Corporation (NYSE: WRB), Globe Life Inc. (NYSE: GL), The Travelers Companies, Inc. (NYSE: TRV), Progressive Corporation (NYSE: PGR), and Charles Schwab Corporation (NYSE: SCHW).

The Federal Reserve has once again declared a 0.75-point jump in the interest rate at the end of their September gathering. The rate hike came in line with the market expectations, as investors anticipated such a hike after the August inflation and other recent key economic data.

In addition, the Federal Reserve had lifted its projection range from three per cent to 3.25 per cent to tame the soaring prices. The policymakers indicated that the lending costs are expected to increase more in the coming months and remain at a higher level for "some time". This marks the central bank's latest move in their effort to bring down the decades-high inflation.

The market has retreated following the rate increase, as the aggressive decision has renewed concerns over an economic slowdown. The policymakers recently indicated that they would keep backing higher rates to bring down inflation, even if it causes an economic downturn.

Now, let's take a dive into the stock performance and earnings highlights of these stocks from the financial sector and see how they have performed amid increasing concerns in the market:

W.R. Berkley Corporation (NYSE: WRB)

W.R Berkley is an insurance company with a dividend yield of 0.6 per cent. The property and casualty insurance holding firm had a P/E ratio of 13.51.

The stock price of the US$ 17.05 billion market cap firm shot up over 17 per cent YTD while gaining about 36 per cent in the last 12 months. However, the WRB stock drifted nearly six per cent in the running quarter through September 22.

The stock of W.R. Berkley Corporation touched its 52-week high of US$ 71.766708 on June 7 this year. Its RSI was about 40, which suggests a volatile state for the stock.

The insurance company declared a quarterly cash dividend of US$ 0.10 per share on its common stock, which would be paid on October 3, 2022.

The property and casualty insurance holding firm's revenue was US$ 2.51 billion in Q2 FY22, against US$ 2.29 billion in the year-ago quarter. The net income to Greenwich, Connecticut-based company's shareholders was US$ 179.32 million in the latest quarter, down from US$ 237.23 million in Q2 FY21.

Globe Life Inc. (NYSE: GL)

Globe Life is a life insurance company with a dividend yield of 0.8 per cent. The firm, which provides several insurance-related services like health insurance, annuity, etc., had a P/E ratio of 14.58.   

The GL stock jumped around 19 per cent YoY and about ten per cent YTD while adding about three per cent in the third quarter through September 22.

The US$ 10.01 billion market cap company declared a quarterly dividend of US$ 0.2075 on its outstanding common stocks on September 7. The dividend is slated to be paid to the investors on November 1, 2022.

Globe Life's revenue was US$ 1.29 billion in Q2 FY22, comparatively up from US$ 1.27 billion in the comparable prior-year quarter. The McKinney, Texas-based firm's net income was US$ 177 million in the fiscal 2022 second quarter, down from US$ 199.61 million in Q2 FY21.

Travelers Companies Inc. (TRV) earnings highlightsSource: ©Kalkine Media®; © Canva Creative Studio via Canva.com

The Travelers Companies, Inc. (NYSE: TRV)

Travelers Companies is a leading insurance provider with a dividend yield of 2.31 per cent. The company provides its clients commercial property, casualty, and personal insurance services.

Meanwhile, the stock of the US$ 37.22 billion market cap firm traded near the flat line this year while adding about one per cent YoY. In the running quarter, its price went down by about seven per cent.

The insurance firm will announce its third-quarter earnings results on October 19. Meanwhile, in Q2 FY22, Travelers Companies' revenue ticked up five per cent YoY to US$ 9.13 billion. However, the net income of the insurance service provider dropped by 41 per cent YoY to US$ 551 million in the latest quarter.

Progressive Corporation (NYSE: PGR)

Progressive Corporation is also an insurance service provider with a market cap of US$ 71.34 billion. The stock price of the insurance firm jumped nearly 19 per cent YTD while climbing up about five per cent QTD.

In the last 12 months through September 22, it added about 32 per cent. The PGR stock reached its 52-week high of US$ 129.765 on September 12, 2022.

In August 2022, Progressive Corporation's net premium written was US$ 4.08 billion, a jump of five per cent YoY. The Mayfield, Ohio-based firm's net income in August 2022 was US$ 119.7 million, compared to a loss of US$ 6.6 million in August 2021.

Charles Schwab Corporation (NYSE: SCHW)

Charles Schwab is a major financial services firm with a dividend yield of 1.2 per cent. The US$ 137.63 billion market cap offers various financial services like banking, investments, consulting, etc.

The banking company's stock hasn't witnessed smooth trading this year like the firms mentioned above. Its YTD performance was down 14 per cent. However, on a YoY basis, the SCHW stock added about two per cent while soaring 13 per cent QTD.

Charles Schwab's GAAP net income was US$ 1.79 billion on revenue of US$ 5.09 billion in Q2 FY22. In the second quarter of fiscal 2022, its net income jumped 42 per cent YoY, while its revenue surged 13 per cent YoY.

Bottom line

Although there is no assurance for any stocks, especially during market volatility, it is seen that the bank and insurance stocks tend to perform better amid a higher rate environment.

Fed Chair Jerome Powell said that the increase in the interest rates is required to cool down the high demand while bringing down the soaring prices. Even though it may cause an economic downturn in the near future, it would help the economy in avoiding damage in the long run.

Mr Powell also said that the policymakers are determined to control the soaring inflation, but they "wish" there was an easier way to do that.

The upcoming picture of the market remains uncertain, given the traders anticipate that the harsh move by the central bank, which already slowed economic growth, could tip the economy into a recession. On the other hand, the central bank indicated that it might stick to its aggressive rate increase plan, even if it could result in an economic downturn, to bring down the soaring costs.


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