Here's Why Hold Strategy is Apt for CNA Financial (CNA) Stock
CNA Financial Corporation CNA has been in investors' good books on the back of new business growth, higher net earned premium, proper management of catastrophe exposures and favorable reinvestment yields.
Optimistic Growth Projections
The consensus estimate for 2023 and 2024 earnings is pegged at $4.33 and $4.44, indicating 12.7% and 2.4% increase from the year-ago reported figure, driven by 6.7% and 2.6% higher revenues of $11.22 billion and $11.51 billion, respectively. The expected long-term earnings growth rate is pegged at 5%.
Northbound Estimate Revision
The Zacks Consensus Estimate for CNA Financial’s 2022 and 2023 earnings has moved 2.1% and 1.1% north, respectively, in the past 60 days. This should instill investors' confidence in the stock.
Earnings Surprise History
CNA Financial has a decent earnings surprise history. It beat estimates in four of the last seven quarters and missed in the other three.
Zacks Rank & Price Performance
CNA Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has lost 9.5% against the industry’s increase of 19.7%.
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Return on Equity (ROE)
CNA Financial’s ROE for the trailing 12 months is 12%, which compares favorably with the industry average of 6.9%. ROE reflects the insurer’s efficiency in using shareholders’ funds.
Style Score
CNA Financial has a favorable VGM Score of A. The VGM Score helps identify stocks with the most attractive value, the best growth and most promising momentum.
Business Tailwinds
CNA Financial remains well-poised to gain from a rise in new businesses, strong rate, lower net catastrophe losses, improved non-catastrophe current accident year underwriting results and higher net earned premium, which contribute to premium growth across its Specialty, Commercial and International segments.
Net investment income should gain from fixed-income securities and other investments as well as a rise in income from limited partnership and common stock investments. Fixed income continues to benefit from favorable reinvestment yields and strong operating cash flows. CNA Financial’s fixed-income investment strategy with highest allocations to diversified investment grade corporates as well as highly rated municipal securities should support investment results.
CNA Financial has been able to maintain underlying combined ratio below 95 for straight 13 quarters. Through targeted portfolio management strategies, the company made significant progress in successfully repositioning the portfolio underwritten via Lloyd’s syndicate in its effort to improve the overall underwriting results of its international operation.
CNA Financial boasts a solid balance sheet and continues to maintain a conservative capital structure with a leverage ratio of 19%, excluding accumulated other comprehensive income. Cash flow from P&C underwriting activities and fixed-income investments remained very strong, reflecting continued excellent underwriting and fixed-income results.
Strong balance sheet and cash flows enable the insurer to engage in shareholder-friendly moves like dividend hikes. In February 2023, CNA Financial’s board approved a 5% hike in quarterly dividend. Simultaneously, CNA announced a special dividend of $1.20 per share, marking nine special dividends. Riding on disciplined execution, denoted by strong underwriting results, CNA hiked its dividend over the past couple of years.
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are Kinsale Capital Group, Inc. KNSL, RLI Corp. RLI and Root, Inc. ROOT. While Kinsale Capital and RLI Corp. sport a Zacks Rank #1 (Strong Buy), Root carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kinsale Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 14.77%. In the past year, KNSL has gained 70.5%.
The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings per share is pegged at $10.37 and $12.41, indicating a year-over-year increase of 32.9% and 19.6%, respectively.
RLI Corp. beat estimates in each of the last four quarters, the average being 43.50%. In the past year, RLI has gained 17.5%.
The Zacks Consensus Estimate for RLI’s 2023 and 2024 earnings has moved 10.1% and 3.7% north, respectively, in the past 30 days.
Root beat estimates in each of the last four quarters, the average being 18.24%. In the past year, the insurer has lost 69.8%.
The Zacks Consensus Estimate for ROOT’s 2023 and 2024 earnings per share indicates a year-over-year increase of 43.8% and 42.5%, respectively.
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