Cincinnati Financial Corporation CINF is well-poised for growth, driven by renewal written premium growth, higher new business premiums, better pricing discipline and the appointment of new agencies.
The stock has seen its estimates for 2021 move up 5.7% in the past 60 days, reflecting investor optimism.
The company delivered an earnings surprise in three of the last four reported quarters with the average beat being 2.66%.
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.68, indicating year-over-year increase of nearly 17.4%.
Factors Driving Cincinnati Financial
Cincinnati Financial continues to witness consistent performance of its Commercial Lines Insurance segment, which majorly contributed to revenue growth of the company. Earned premium in this segment grew at a two-year CAGR (2017 – 2019) of 2.4%. The company intends to use predictive analytics tools to improve pricing precision and segmentation and aims to maintain appropriate pricing discipline for both new and renewal business. Appropriate pricing discipline for both new and renewal business, higher new business premiums and renewal written premium growth and growth in each major line of business in this segment are expected to fuel the performance of this segment going forward.
The property and casualty insurer’s Excess and surplus lines premiums also continued to grow on the back of increase in agency renewal written premiums, reflecting higher renewal pricing. Earned premium in this segment grew at a two-year CAGR (2017 – 2019) of 15.3%. This segment is expected to see the magnitude of rate increases rise slightly for risks that are casualty-driven. New business opportunities are expected to increase as standard market insurance companies continue to re-underwrite business they previously took from the excess and surplus lines market.
As part of the strategic initiatives, Cincinnati Financial continues to appoint new agencies to boost growth prospects and to develop additional points of distribution. New agency appointments made during 2019 and 2020 produced a $35 million increase in standard lines new business in the first half of 2020. The insurer plans to make 125 appointments of independent agencies that offer most of the property casualty insurance products. Further, it plans to appoint additional agencies that focus on high net worth personal lines clients. In 2020, it targets the appointment of approximately 35 agencies that market only personal lines products for the company.
Furthermore, investors should be impressed by its stellar record of 59 straight years of dividend increases. Its current dividend yield of 3% is higher than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.
Value creation ratio is the primary financial performance metric, which measures long-term progress in creating shareholder value. The company targets average value creation ratio of 10% to 13% over the next five-year period.
Return on equity (ROE), reflecting the company’s efficient utilization of its shareholders’ funds to generate earnings, has been increasing over the past several years. Its trailing twelve months ROE of 6.5% betters the industry average of 6.2%.
However, shares of this Zacks Rank #3 (Hold) property and casualty insurer have lost 29.2% in the past year compared with the industry’s decline of 2.1%. Nevertheless, higher premiums, and continued strong performance at Commercial Lines segment are likely to drive shares higher in the near term.
Stocks to Consider
Investors interested in property and casualty industry may look at Donegal Group Incorporation DGICA, Fidelity National Financial Inc., FNF and The Allstate Corporation ALL, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Donegal provides personal and commercial lines of property and casualty insurance to businesses and individuals. It surpassed estimates in each of the last four quarters, with the average being 86.44%.
Fidelity National provides various insurance products in the United States and offers title insurance, escrow, other title related services and home warranty insurance. It surpassed estimates in each of the last four quarters, with the average being 32.13%.
Allstate provides property and casualty, and other insurance products in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average being 25.24%.
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