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Cincinnati Financial Rides on Strong Segmental Performance

Zacks Equity Research

Cincinnati Financial Corporation CINF is well-poised for growth, driven by consistent performance of its Commercial Lines Insurance segment, efficient pricing decisions and the appointment of new agencies resulting in premium growth. The stock carries a VGM Score of A. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Shares of this Zacks Rank #3 (Hold) property and casualty insurer have lost 12% in a year, compared with the industry’s decline of 14.4%.


 

Cincinnati Financials’ return on equity was 7.5% in the trailing 12 months, higher than the industry average of 6.4%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.

The company continues to witness consistent performance of its Commercial Lines Insurance segment, which majorly contributed to revenue growth of the company. On the back of several growth initiatives and price increases, 2019 revenues surge 47% year over year to $7.9 billion.

For efficient pricing decisions, the company remains committed to executing its strategic initiatives. Since its inception in 2008, Cincinnati Financial’s Excess and Surplus (E&S) line has been performing well. Over the past five years, E&S net written premiums have nearly doubled. Despite a soft market environment, the segment has been able to achieve rate increases consistently for the past few years. This upward trend is expected to continue on improving excess and surplus lines market.

As part of the strategic initiatives, Cincinnati Financial appointed new agencies to write more business and increase market share. In 2019, it appointed 187 independent agencies, 70 of which are related to personal lines of products. In 2020, it plans to further appoint 125 additional agencies, mostly offering property casualty insurance products and another 35 catering to personal lines. These agencies along with others appointed in recent years are expected to offer multiple potential opportunities to the company for enhancing its market share.

Banking on sound capital and liquidity position, Cincinnati Financial effectively deploys capital through dividend hikes as well as special dividends. In the first quarter of 2020, the dividend was increased by nearly 7.1%, reflecting five-year (2014-2019) CAGR of 4.9%.  Its dividend yield of 2.9% betters the industry average of 0.5%.

The company has a decent earnings surprise history. It beat estimates in each of the trailing four quarters, with the average being 17.86%.

The company has an impressive Momentum Score of A, which reflects the short-term attractiveness of the stock.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.92, indicating increase of nearly 1.7% from the year-ago reported figure. It has a favorable Growth Score of B. This style score identifies growth prospects of a company.

Stocks to Consider

Some better-ranked stocks in the same space are Donegal Group Inc. DGICA, First American Financial Corp. FAF and Markel Corp. MKL. While Donegal Group and First American Financial sport a Zacks Rank #1 (Strong Buy), Markel carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Donegal Group surpassed estimates in the last four quarters, the average positive surprise being 271.06%.

First American surpassed estimates in the last four quarters, the average positive surprise being 17.68%.

Markel surpassed estimates in two of the last four quarters. The four-quarter beat is 23.14%, on average.

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