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Cincinnati Financial (CINF) Up 3.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Cincinnati Financial (CINF). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cincinnati Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cincinnati Financial Q2 Earnings & Revenues Beat

Cincinnati Financial reported second-quarter 2019 operating income of 85 cents per share, which beat the Zacks Consensus Estimate by 32.8%. Also, the bottom line improved 4.9% year over year.

The results reflect price increases and premium growth initiatives.

Operational Update    

Total operating revenues in the quarter under review were $1.549 billion, up 6.6% year over year. This improvement was driven by 7% higher premiums earned and 4% rise in investment income. Revenues surpassed the Zacks Consensus Estimate by 1.4%.

Net written premiums increased 9%, reflecting price increases and premium growth initiatives.

Total benefits and expenses of Cincinnati Financial increased 6.9% year over year to $1.4 billion, primarily due to higher insurance loss and contract holders’ benefits plus underwriting, acquisition and insurance expenses plus other operating expenses.

Combined ratio — a measure of underwriting profitability — improved 70 basis points (bps) year over year to 96.5%.

Quarterly Segment Update

Commercial Lines Insurance: Total revenues of $824 million grew 1.5% year over year. This upside was primarily driven by solid premiums earned. Underwriting profit of $12 million dropped 74.5% year over year. Combined ratio deteriorated 440 bps year over year to 98.6%.

Personal Lines Insurance: Total revenues of $349 million rose 5% year over year owing to 5% increase in premiums earned. The segment reported underwriting profit of $5 million, which marked a rebound from the year-ago loss of $32 million. Combined ratio improved 1120 bps year over year to 98.9%.

Excess and Surplus Lines Insurance: Total revenues of $67 million rose 16% year over year, aided by 18% higher earned premiums. The segment’s underwriting profit of $17 million surged 31% year over year. Combined ratio improved 150 bps year over year to 76.1%.

Life Insurance: Total revenues were $105 million, up 2% year over year. Total benefits and expenses increased 17.3% year over year to $95 million.

Financial Update

As of Jun 30, 2019, Cincinnati Financial had total assets worth $24.3 billion, up nearly 11% from the level at 2018 end.

Cincinnati Financial’s debt-to-capital ratio was 8.3% as of Jun 30, 2019, up 120 bps from end of 2018.

As of Jun 30, 2019, Cincinnati Financial’s book value per share was at a record high of $55.92, up 16.3% from 2018 end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 31.67% due to these changes.

VGM Scores

At this time, Cincinnati Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cincinnati Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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