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Cincinnati Financial (CINF) Up 122.6% in a Year: Here's Why

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Shares of Cincinnati Financial Corporation CINF have gained 122.6% in a year compared with the industry's increase of 51.4%. The Zacks S&P 500 composite has rallied 41.9% in the said time frame. With a market capitalization of $19.2 billion, average volume of shares traded in the last three months was 0.8 million.



The rally was largely driven by higher new business premiums, better pricing, appointment of new agencies and effective capital deployment.

The property and casualty insurer recently delivered first-quarter 2021 operating earnings of $1.37 per share, beating the Zacks Consensus Estimate by 30.5%. The bottom line also improved 63.1% year over year.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $4.11 and $4.43, indicating year-over-year increase of 25.3% and 7.7%, respectively.

It has a decent earnings surprise history too. Its bottom line beat estimates in three of the last four quarters, the average being 17.63%.

Will the Bull Run Continue?

The stock has seen its estimates for 2021 and 2022 move up nearly 3.5% and 9.4%, respectively, in the past 30 days. This should instill investors' confidence in the stock.

Appropriate pricing discipline for both new and renewal business, higher new business premiums, renewal written premium growth, improvement in each major line of business and increase in agency renewal written premiums are likely to benefit the Commercial Lines Insurance and Excess and surplus lines segments of the company, which in turn will drive top-line growth.

These segments have been driving the company’s revenues as evident from a four-year (2016-2020) CAGR of 5.8%. The trend is likely to continue in the days ahead. Notably, the Zacks Consensus Estimate for the company’s 2021 revenues is pegged at $7.1 billion, indicating year-over-year increase of 6.6%.

Value creation ratio (VCR), which measures long-term progress in creating shareholder value, was 4.1% in the first quarter. The insurer targets average VCR of 10% to 13% over the next five-year period.

The company remains focused on driving premium growth opportunity with new agency appointments, which are expected to bring potential for growth over time. Agency relationship net count increased by 49% since the end of 2010.

Despite higher catastrophe losses and loss expenses, Cincinnati Financial has consistently maintained the combined ratio within the range of 95% to 100%.

The pandemic did not materially impact its cash flows in the first quarter. The company boasts a solid balance sheet and improving leverage. Its debt to capital of 7.5% betters the industry average of 20.1%. A lesser debt burden relative to the industry is encouraging.

Furthermore, its times interest earned — a measure to identify the company’s ability to service debt — of 72.2 is better than the industry average of 32.4.
This implies that its earnings are sufficient to cover interest obligations.

In addition, it ended the first quarter of 2021 with a cash and cash equivalent position of $947 million that grew 5.2% from the 2020-end level, as well as $57 million of accessible capital on its revolver. As of Mar 31, 2021, it delivered strong cash flow from operations of $354 million that doubled year over year.

Moreover, investors should be impressed by the insurer’s stellar record of 61 straight years of dividend increases. This Zacks Rank #2 (Buy) insurer raised its dividend at a seven-year (2014-2021) CAGR of 5.3%. Its current dividend yield of 2.1% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.

Furthermore, its 6% return on equity (ROE) is better than the industry average of 5.6%, reflecting its efficiency in utilizing shareholders’ funds.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include HCI Group, Inc. HCI, American Financial Group, Inc. AFG and Alleghany Corporation Y. While HCI Group sports a Zacks Rank #1 (Strong Buy), American Financial and Alleghany carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of HCI Group surpassed estimates in three of the last four quarters and missed in the other one, the average being 42.91%.

American Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 32.2%.

Alleghany’s earnings surpassed estimates in each of the last four quarters, the average being 128.63%.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

HCI Group, Inc. (HCI) : Free Stock Analysis Report

American Financial Group, Inc. (AFG) : Free Stock Analysis Report

Alleghany Corporation (Y) : Free Stock Analysis Report

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