Cincinnati Financial Stays at Outperform


We are reiterating our Outperform recommendation on Cincinnati Financial Corp. (CINF) following better-than-expected third quarter results.  
This Zacks Rank #1 (Strong Buy) property and casualty insurer reported a solid third quarter which included a 27% positive earnings surprise. Over the past four quarters this insurer delivered an average positive surprise of 65%.

Why reiteration?

On Oct 24, Cincinnati Financial reported third-quarter operating earnings of 70 cents per share, significantly exceeding the Zacks Consensus Estimate of 55 cents per share. Earnings also grew 9.4% year over year.  The earnings beat came on the back of increased premium income, and strong contribution from the company’s Personal as well as Excess and Surplus lines segments.

Revenue for Cincinnati Financial during the reported quarter was $1.15 billion, up 11% year over year. The increase was driven by higher premiums earned.

Cincinnati Financial has been witnessing rising earnings estimates since the earnings release. Over the last 30 days, two analysts covering the stock raised their estimates for 2013 by 7.4% to $2.75. Estimates for 2014 rose by a similar percentage to $2.61 as both the analysts covering the stock pulled up their estimates.

Cincinnati Financial has continuously witnessed improving business conditions in the Commercial line of business. This improvement has been due to several growth initiatives as well as a gradual increase in insurance rates.

Cincinnati Financial’s Excess and Surplus line is also performing well. The segment has been able to achieve rate increases for the last 37 consecutive months, continuing at a low double-digit range. We expect the trend to continue, given the improving excess and surplus lines market.

A strong relationship with its agencies also bodes well for Cincinnati Financial.

Cincinnati Financial’s strong balance sheet, low reliance on debt and a disciplined capital management strategy also aids its bottom-line earnings.

Cincinnati Financial has also maintained its tradition of increasing dividend every year and has been doing so for the past 52 years. It is regular in buying back shares.

Other Stocks to Consider

Besides Cincinnati Financial Alleghany Corporation (Y), Aspen Insurance Holdings Ltd. (AHL) and CNA Financial, Corporation (CNA) sharing the same Zacks Rank look impressive.

Read the Full Research Report on CINF
Read the Full Research Report on CNA
Read the Full Research Report on Y
Read the Full Research Report on AHL

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