On Dec 16, 2013, shares of CNA Financial Corporation (CNA) hit a 52-week high of $41.95. The momentum was driven by the company’s favorable operating results so far this year, backed by a steady financial and operational profile.
CNA Financial has shown strong operating results for all three quarters of the year, with an average earning surprise of 23.3%. The company is benefiting from benign catastrophe loss this year compared to last year, which has saved a huge cash amount that would otherwise have been paid to settle claims.
The company is also benefiting from improving fundamentals of the insurance industry. Margin improvement and favorable rate movement are set to boost the company’s results.
An increase in interest rates is also expected to have a favorable effect on earnings going forward.
CNA Financial carrying a Zacks Rank #1 (Strong Buy) boasts of solid asset quality, and overall sound capital position, liquidity and financial flexibility, which drives credit rating agencies to give it a strong credit score.
A look at the earnings estimates also provides evidence that the stock has been gaining popularity among the analysts. All the estimates on the company have gone higher in the past 60 days, with not a single estimate going lower. This has pushed the Zacks Consensus Estimate consensus sharply higher too, with 2013 earnings up 10% to $3.42 per share. For 2014 also, all the estimates moved north pushing the estimates up by 6.0% to $3.40 per share.
Valuation for CNA Financial looks reasonable. The shares are trading at 14.2% discount to the peer group average both on a forward price-to-earnings basis and 40% discount to a price-to-book basis. Return on equity is 32% lower than the peer group average. However, the year–to–date return from the stock was 47.2%, much above the S&P’s return of 25.3%.
Some other stocks in the property and casualty industry include Alleghany Corporation (Y), Cincinnati Financial Corp. (CINF) and Endurance Specialty Holdings Ltd. (ENH). All these carry the same Zacks Rank as CNA Financial and are worth considering.