CNA Financial Corporation CNA is well poised to gain from improved net premiums and effective capital deployment strategies.
The company’s ROE of 8.4% compares favorably with the industry’s figure of 6.5%. This implies efficient utilization of shareholders’ funds.
Factors Driving Performance
CNA Financial continues to gain driven by constant top-line growth. Revenues have witnessed a CAGR of 4.3% in the past four years (2015-2019). We believe that strong net premiums earned across its property & casualty (P&C) business is likely to drive revenues in the days ahead. Strong retention rates and addition of new business lines are also likely to provide a boost to the top line.
Furthermore, the company’s strong underwriting results have led to an improvement in the combined ratio of its P&C business in the past few years. Despite a tough operating environment, CNA Financial has been able to maintain underlying combined ratio below 95% for consecutive six quarters. We believe that efficient pricing decisions are likely to result in robust underwriting results in the days ahead.
By virtue of its sound capital position, CNA Financial has increased dividend payments at a five-year CAGR of 7%. Its dividend yield of 5% compares favorably with the industry’s figure of 0.5%, thus making the stock an attractive pick for yield seeking investors.
Moreover, net investment income, which has been improving since 2016 onward, has suffered a setback in first-quarter 2020. Nevertheless, the decline was partially offset by stable earnings from fixed-income and other investments. However, a lower interest rate environment might keep investment yields under pressure in the near term.
Shares of this Zacks Rank #3 (Hold) P&C insurer have lost 35.2% in a year compared with the industry’s decline of 15.8%. Nevertheless, we believe that the company’s strong fundamentals are likely to drive its shares going forward.
However, escalating expenses, which are likely to put pressure on margin expansion, remain a concern.
Stocks to Consider
Some better-ranked insurance stocks include American Equity Investment Life Holding Company AEL, The Allstate Corporation ALL and Palomar Holdings Inc. PLMR each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Equity Investment beat estimates in each of the trailing four quarters, with the average positive surprise being 63.04%.
Allstate surpassed estimates in each of the preceding four quarters, with the average positive surprise being 18.45%.
Palomar outpaced estimates in two of the last four quarters, with the average positive surprise being 10.93%.
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The Allstate Corporation (ALL) : Free Stock Analysis Report
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