The analysts covering Cincinnati Financial Corporation (NASDAQ:CINF) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.
Following the downgrade, the consensus from five analysts covering Cincinnati Financial is for revenues of US$4.7b in 2020, implying a substantial 41% decline in sales compared to the last 12 months. After this downgrade, the company is anticipated to report a loss of US$4.84 in 2020, a sharp decline from a profit over the last year. Prior to this update, the analysts had been forecasting revenues of US$6.4b and earnings per share (EPS) of US$3.88 in 2020. There looks to have been a major change in sentiment regarding Cincinnati Financial's prospects, with a sizeable cut to revenues and the analysts now forecasting a loss instead of a profit.
The consensus price target fell 5.9% to US$83.13, implicitly signalling that lower earnings per share are a leading indicator for Cincinnati Financial's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Cincinnati Financial analyst has a price target of US$100.00 per share, while the most pessimistic values it at US$68.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Cincinnati Financial's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with the forecast 41% revenue decline a notable change from historical growth of 6.5% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 1.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Cincinnati Financial is expected to lag the wider industry.
The Bottom Line
The biggest low-light for us was that the forecasts for Cincinnati Financial dropped from profits to a loss this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Cincinnati Financial's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Cincinnati Financial.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Cincinnati Financial analysts - going out to 2021, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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