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Cincinnati Financial (CINF) Up 9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Cincinnati Financial (CINF). Shares have added about 9% 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 Q3 Earnings Top, Revenues Rise Y/Y

Cincinnati Financial Corporation reported third-quarter 2022 operating income of 73 cents per share, which beat the Zacks Consensus Estimate by 2.8% but missed our estimate of $1.06. The bottom line decreased 43% year over year.

Operational Update

Cincinnati Financial’s results reflected higher premiums and investment income, partly offset by higher expenses and deteriorated combined ratio.

Total operating revenues in the quarter under review were $2.1 billion, which improved 12.2% year over year. This improvement was driven by higher earned premiums and investment income, net of expenses. The top line missed the consensus mark by 0.09%. The figure was lower than our estimate of $2.3 billion.

Net written premiums climbed 14% year over year to $1.7 billion, attributable to premium growth initiatives, price increases and a higher level of insured exposures. Total investment income, after-tax, increased 8% year over year to $163 million, owing to growth in equity portfolio dividends and an increase in interest income from fixed-maturity securities.

Total benefits and expenses of Cincinnati Financial increased 24.1% year over year to $1.9 billion, primarily due to higher insurance losses and contract holders’ benefits and underwriting, acquisition and insurance expenses. The figure exceeded our estimate of $1.8 billion.

In its property & casualty (P&C) insurance business, Cincinnati Financial witnessed an underwriting loss of $66 million against an underwriting income of $121 million in the year-earlier period. The combined ratio — a measure of underwriting profitability — deteriorated 1130 basis points (bps) year over year to 103.9.

Quarterly Segment Update

Commercial Lines Insurance: Total revenues of $1 billion increased 11% year over year. This upside was primarily driven by 11% increase in premiums earned. Underwriting income was $11 million decreased 94% year over year. The combined ratio deteriorated 1840 bps year over year to 99.

Personal Lines Insurance: Total revenues of $432 million increased 11% year over year on account of an 11% increase in premiums earned. Underwriting loss was $18 million compared with an underwriting loss of $10 million in the year-earlier period. The combined ratio deteriorated 180 bps year over year to 104.5.

Excess and Surplus Lines Insurance: Total revenues of $126 million grew 19% year over year, aided by 19% higher earned premiums. Underwriting profit improved 28.5% year over year to $9 million. The combined ratio improved 20 bps year over year to 93.9.

Life Insurance: Total revenues were $117 million, down 2.5% year over year. Total benefits and expenses decreased 13.3% year over year to $91 million due to lower contract holders’ benefits incurred.

Financial Update

As of Sep 30, 2022, Cincinnati Financial had total assets worth $28.2 billion, down 10.1% from the level at 2021 end. Long-term debt was $789 million as of Sep 30, 2022, unchanged from the 2021-end level. Cincinnati Financial’s debt-to-capital ratio was 8.1% as of Sep 30, 2022, down 210 bps from the end of 2021. As of Sep 30, 2022, Cincinnati Financial’s book value per share was $60.01, down 26.6% from 2021 end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -19.56% due to these changes.

VGM Scores

Currently, Cincinnati Financial has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cincinnati Financial has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Cincinnati Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Axis Capital (AXS), a stock from the same industry, has gained 5.2%. The company reported its results for the quarter ended September 2022 more than a month ago.

Axis Capital reported revenues of $1.08 billion in the last reported quarter, representing a year-over-year change of -18.5%. EPS of $0.03 for the same period compares with $0.01 a year ago.

Axis Capital is expected to post earnings of $1.63 per share for the current quarter, representing a year-over-year change of -23.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.2%.

Axis Capital has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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