During the second quarter John Linehan of the T Rowe Price Equity Income Fund reduced the fund's stake in Chubb (CB) at an average price of $123.26. The trade had a 0.09% impact on the portfolio. The fund now owns 319,600 shares in the company.
Chubb is a Swiss-incorporated holding company of the ACE Group of Companies founded in 1985. The company, with its direct and indirect subsidiaries, provides insurance and reinsurance organization serving the needs of a diverse group of clients. Chubb is the world’s largest publicly traded property and casualty insurer with operations in 54 countries.
In January, ACE Limited acquired The Chubb Corporation and adopted the renowned Chubb name globally. The new Chubb has $160 billion in assets and $37.5 billion of gross premiums written in 2015 as if ACE and Chubb were one company.
According to GuruFocus Chubb has a financial rating of 6/10 with a cash-to-debt ratio of 0.08 ranking it beneath 95% of the 130 companies in the global insurance - property and casualty industry. The company also has a 7/10 profitability and growth rating with an operating margin of 12.25% ranking it above 63% of the companies in its industry.
During the second quarter guru Daniel Loeb (Trades, Portfolio) commented on Chubb:
Chubb Ltd. is the product of ACE Limited’s acquisition of The Chubb Corporation which closed in January. The deal combined two world-class operators that have consistently put up ~90% combined ratios – almost 900bps better than North American peers – and have compounded book value at 10%-plus the past decade, more than double that of peers. The new Chubb is the largest public pure-play P&C company by underwriting income. It also has a number of factors we look for in a pro forma situation: an A-plus CEO in Evan Greenberg; complementary fit across products, distribution and geography; and a plan that is less focused on short-term cost savings than long-term strategic opportunities for growth, which are abundant.
Chubb’s scale and focus on growth could not come at a better time as certain competitors scale back operations to satisfy shareholder demands. We are willing to forego short-term cost cuts or buybacks to own a franchise that is a long-term winner with the premier franchise in U.S. high-net-worth insurance, No. 1 share in global professional lines and an enviable global platform with leading A&H and personal lines in Asia and Latin America. We view Chubb as a high-quality compounder in the financials space with double-digit earnings growth potential over the next few years. Critically, this earnings power is far less sensitive to rates and credit quality than fundamental execution.
Linehan may have decided to reduce his stake for the following reasons:
- Chubb has seen its per share revenue slow growth over the previous 12 months.
- Its dividend yield is close to a two-year low.
- The company’s price-earnings (P/E) ratio is close to its 10-year high at 20.48.
- Chubb’s price is close to its 10-year high; intelligent investors like to buy low and sell high.
- The DCF calculator calculates Chubb to be worth $77.07, which means that the company has a -63.47% margin of safety for investors.
Below is a Peter Lynch chart that shows Chubb is trading above its intrinsic value.
Linehan began working at T. Rowe Price in 1998. From there he worked his way up to head of U.S. equity in 2009, and then he was promoted to portfolio manager of the T Rowe Price Equity Income Fund in November 2015. Before Linehan worked at T. Rowe Price he graduated with a B.A. from Amherst College and received his M.B.A. from Stanford University.
Since its inception in 1986, the T Rowe Price Equity Income Fund has returned an estimated 10.3% profit.
Cheers to your investment success.
Disclosure:Â Author does not own any shares of this company.
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