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Cincinnati Financial (CINF) Grows on Improving Premiums

Zacks Equity Research

Cincinnati Financial Corporation CINF, which offers property and casualty (P&C) insurance services to its clients, has been displaying consistent improvement in premiums over the past several years. We expect this momentum to continue in the future as well on the back of premium growth initiatives, price rises and a higher level of insured exposures.

Additionally, with the company owning an agent-centric business model, resorting to appointing new agencies has been one of its key strategic initiatives. Appointment of such agencies enables the insurer to grow its market share while being also confident that its agent-focused business model will drive long-term premium growth as proven in the past 60 years.

Moreover, sustained premium growth across the P&C insurer’s business lines has contributed to the aforementioned improvement and is expected to do so in the near term. Further, the insurer is anticipated to increase premiums via a disciplined expansion of Cincinnati Re, which has been making a modest contribution to the company’s earnings.

In fact, for this Zacks Rank #2 (Buy) P&C insurer, the Zacks Consensus Estimate for current-year earnings is pegged at $3.14, indicating a year-over-year rise of 14.6% and for 2019, the consensus estimate for the same stands at $3.33, depicting a 5.9% year-over-year increase.

With respect to pricing, the company has experienced favorable pricing across most business lines in the past. It also remains optimistic about the fact that improved pricing for both its personal and commercial auto segments coupled with strategic initiatives might boost results for such business lines.

Given the rising interest rates, Cincinnati Financial has been experiencing better investment results over the last several quarters and we expect this growth trajectory to sustain on the back of a benign interest rate environment.

Riding on the strength of steady premium growth and higher investment income, the company’s top line has been witnessing substantial growth over the past several years (with the metric growing 4.8% over the last five years). In fact, the Zacks Consensus Estimate for current-year revenues is pegged at $5.9 billion, reflecting a 5.1% improvement on a year-over-year basis while for 2019, the consensus mark stands at $6.2 billion, representing a 5.2% rise.

Regarding addition of shareholder value, the company has been indulging in shareholder-friendly moves like share buybacks, dividend hikes and paying special dividends. In the last five years, the company has raised dividends by 5.4%. Such measures speak volumes for the company’s strong liquidity position and in turn, not only retain investor confidence in the stock but also attract new ones.

It is important to note here that the P&C insurer has been constantly raising the yearly dividend for the past 58 years, a record matched by only seven other publicly-traded companies in the United States.

Shares of the company have gained 3.1% year to date against the industry’s decline of 3.6%. We expect the aforementioned positives to drive the stock higher in the near term.

Other Stocks That Warrant a Look

Investors interested in other top-ranked stocks from the same space can also consider Mercury General Corporation MCY, Atlas Financial Holdings, Inc. AFH and W.R. Berkley Corporation WRB.

Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive surprises in two of the trailing four reported quarters with average beat of 14.49%. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial engages in underwriting commercial automobile insurance policies in the United States. The company pulled off earnings surprises in three of the previous four reported quarters, the average beat being 17.56%. The company holds a Zacks Rank of 2.

W.R. Berkley operates as a commercial lines writer in the United States and internationally. The company surpassed estimates in all the preceding four reported quarters, the average being 17.73%. The company is a Zacks #2 Ranked stock.

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