Assessing CNA Financial Corporation’s (NYSE:CNA) performance as a company requires looking at more than just a years’ earnings data. Below, I will run you through a simple sense check to build perspective on how CNA Financial is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its insurance industry peers.
How Did CNA’s Recent Performance Stack Up Against Its Past?
CNA’s trailing twelve-month earnings (from 30 June 2018) of US$928.0m has declined by -16.8% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.8%, indicating the rate at which CNA is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and if the rest of the industry is feeling the heat.
In the last couple of years, revenue growth has not been able to catch up, which indicates that CNA Financial’s bottom line has been driven by unsustainable cost-reductions.
Viewing growth from a sector-level, the US insurance industry has been growing its average earnings by double-digit 10.1% over the past year, and a more subdued 6.7% over the previous five years. This growth is a median of profitable companies of 25 Insurance companies in US including ACMAT, Heritage Insurance Holdings and Everest Re Group. This shows that any tailwind the industry is benefiting from, CNA Financial has not been able to leverage it as much as its average peer.
In terms of returns from investment, CNA Financial has fallen short of achieving a 20% return on equity (ROE), recording 8.1% instead. Furthermore, its return on assets (ROA) of 1.9% is below the US Insurance industry of 2.0%, indicating CNA Financial’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for CNA Financial’s debt level, has increased over the past 3 years from 3.6% to 4.1%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. I suggest you continue to research CNA Financial to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CNA’s future growth? Take a look at our free research report of analyst consensus for CNA’s outlook.
- Financial Health: Are CNA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.