A month has gone by since the last earnings report for Cincinnati Financial (CINF). Shares have added about 6% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Cincinnati Financial Q1 Earnings Top, Revenues Up Y/Y
Cincinnati Financial reported first-quarter 2019 operating income of $1.05 per share, which beat the Zacks Consensus Estimate of 94 cents by 11.7%. Also, the bottom line improved 45.8% year over year.
The results reflect price increases and premium growth initiatives.
Including net realized investment gain of $3.17 per share, net income of $4.22 per share marked a reversal from the year-ago loss of 19 cents per share.
Total operating revenues in the quarter under review were $1.5 billion, up 5.7% year over year. This improvement was driven by 6% higher premiums earned and a 5% rise in investment income.
Total benefits and expenses of Cincinnati Financial increased 61.4% year over year to $1.3 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 490 basis points (bps) year over year to 93%.
Quarterly Segment Update
Commercial Lines Insurance: Total revenues of $811 million grew 12% year over year. This upside was primarily driven by solid premiums earned. Underwriting profit of $76 million increased more than fivefold. Combined ratio improved 750 bps year over year to 90.8%.
Personal Lines Insurance: Total revenues of $345 million rose 6% year over year owing to 6% increase in premiums earned. The segment incurred underwriting loss of $4 million, narrower than $9 million loss incurred in the year-ago quarter. Combined ratio improved 190 bps year over year to 101.3%.
Excess and Surplus Lines Insurance: Total revenues of $64 million rose 14% year over year, aided by 13% higher earned premiums. The segment’s underwriting profit of $11 million dropped 39% year over year. Combined ratio deteriorated 1470 bps year over year to 83.5%.
Life Insurance: Total revenues were $100 million, 5% up year over year. Total benefits and expenses increased 11% year over year to $92 million.
As of Mar 31, 2019, Cincinnati Financial had total assets worth $23.4 billion, up 6.5% from the level at 2018 end.
Cincinnati Financial’s debt-to-capital ratio was 8.7% as of Mar 31, 2019, improved 80 bps from 9.5% at the end of 2018.
As of Mar 31, 2019, Cincinnati Financial’s book value per share was a record high of $52.88, up 9% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Cincinnati Financial has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, 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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