It has been about a month since the last earnings report for Cincinnati Financial (CINF). Shares have lost about 10.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cincinnati Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cincinnati Financial's Q4 Earnings Top, Rise Y/Y
Cincinnati Financial reported fourth-quarter 2019 operating income of $1.23 per share, beating the Zacks Consensus Estimate by 10.8%. Also, the bottom line improved 25.5% year over year on the back of higher revenues.
Total operating revenues in the quarter under review were $1.6 billion, up 8.8% year over year. This improvement was driven by 9% higher premiums earned and a 4% rise in investment income.
Net written premiums increased 11% from the prior-year quarter, reflecting price increases and premium growth initiatives.
Total benefits and expenses of Cincinnati Financial increased 6.2% year over year to $1.4 billion, primarily due to higher insurance loss and contract holders’ benefits plus underwriting, acquisition and insurance expenses.
Combined ratio — a measure of underwriting profitability — improved 230 basis points (bps) year over year to 91.6%.
Quarterly Segment Update
Commercial Lines Insurance: Total revenues of $854 million grew 5% year over year. This upside was primarily boosted by solid premiums earned. Underwriting profit of $97 million surged 76.4% year over year as well. The combined ratio also contracted 460 bps year over year to 88.8%.
Personal Lines Insurance: Total revenues of $359 million rose 5% year over year owing to 5% increase in premiums earned. The segment generated underwriting profit of $4 million, plunging 87% year over year. The combined ratio expanded 760 bps year over year to 99.3%.
Excess and Surplus Lines Insurance: Total revenues of $76 million climbed 25% year over year, aided by 25% higher earned premiums. However, the segment’s underwriting profit of $13 million dropped 13% year over year.
Moreover, the combined ratio expanded 750 bps year over year to 82.9%.
Life Insurance: Total revenues were $106 million, up 6% year over year.
For the full year, total operating income came in at $4.20 per share, up 25% year over year. Total revenues for the year resulted in $7.9 billion, up 47% year over year.
As of Dec 31, 2019, cash and invested assets were $20.5 billion, up 17% from the 2018-end level.
Total assets of $25.4 billion increased 15.8% from the figure at 2018 end.
Total debt amounted to $827 million, up 0.9% from the number at 2018 end.
Cincinnati Financial’s debt-to-capital ratio was 7.7% as of Dec 31, 2019, contracting 180 bps from the number at 2018 end.
As of Dec 31, 2019, its book value per share was at $60.55, up 26% from the figure at 2018 end.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
Currently, Cincinnati Financial has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cincinnati Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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