On Apr 3, 2013, shares of Cincinnati Financial Corp. (CINF) hit a 52-week high of $47.69. The company reported a positive earnings surprise of 122% in the fourth quarter. Cincinnati Financial witnessed positive earnings surprises in all the 4 quarters of 2012, with an average beat of 64.01%.
Cincinnati’s Excess and Surplus line is performing well. Despite a soft market environment, the segment has been able to achieve rate increases consistently. We expect the trend to continue, given the improving excess and surplus lines market.
Moreover, the company engages in appointing agencies to augment its performance in the long-term. During 2013 it plans to appoint around 65 agencies. These new agencies are expected to plough in $5 billion of direct written premium by 2015.
Its long-term strategy also includes geographical diversification of operations which makes Cincinnati a national insurer, a step up from being a regional insurer.
Cincinnati has a strong capital position which allows it to indulge in share repurchases and dividend payouts to create shareholder value. The company also focuses on maintaining lower debt levels. Moreover, its consistent cash flow and prudent cash balances continue to create strong liquidity.
Significant share repurchases and long-term growth strategies are expected to bolster earnings of Cincinnati going forward. Cincinnati is scheduled to report its first quarter, 2013 results on Apr 25, 2013. The Zacks Consensus Estimate for the first quarter of 2013 is pegged at 52 cents representing a year over year improvement of 7.64%.
Valuation looks attractive for Cincinnati. The shares are trading at a discount to the peer group average, both on a price-to-book basis and forward price-to-earnings basis, with return on equity remaining 1.4% above the peer group average of 7.3%. The 1-year return from the stock is 37.43%, much above NASDAQ’s return of 4.11%.
Cincinnati currently carries a Zacks Rank #2 (Buy). Other stocks in this industry such as AXIS Capital Holdings Limited (AXS), EMC Insurance Group Inc. (EMCI) and Arch Capital Group Ltd. (ACGL) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.
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