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Why Is CNA Financial (CNA) Down 1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for CNA Financial (CNA). Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is CNA 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 the most recent earnings report in order to get a better handle on the important catalysts.

CNA Financial Q2 Earnings Beat, Premiums Rise Y/Y

CNA Financial  reported second-quarter 2019 core earnings of $1.08 per share, which beat the Zacks Consensus Estimate of $1.01. Also, the bottom line increased 9.1% year over year.
 
The improvement stemmed from better underlying loss ratio, increase in new business and higher rate increases.

Behind Second-Quarter Headlines

Net written premiums at Property & Casualty Operations improved 6% year over year to $1.9 billion driven by rate increase and higher new business.

Net investment income inched up 1% year over year to $420 million driven by fixed income securities.

Combined ratio deteriorated 190 basis points year over year to 95.7%.

Book value as of Jun 30, 2019 was $44.08 per share, down 1.1% from Dec 31, 2018.

Core return on equity was 9.9%, up 80 basis points (bps).

Segment Results

Specialty’s net written premiums rose nearly 4% year over year to $713 million, driven by higher new business, strong retention and favorable rate.  Combined ratio deteriorated 390 bps to 90.7%.

Commercial’s net written premiums increased 13% year over year to $912 million, driven by higher new business and favorable rate. Combined ratio deteriorated 310 bps to 99.7%.

International’s net written premiums dropped 8% year over year to $249 million attributable to strategic exit from certain Hardy business classes in the fourth quarter of 2018. Combined ratio improved 720 bps to 97.5%.

Life & Group’s total operating revenues were $335 million, up 1.8% year over year. Core income of $7 million rebounded from the year-ago loss of $10 million.

Corporate & Other’s core loss of $11 million was substantially narrower than a loss of $39 million in the prior-year period.
 
Dividend Update

CNA Financial’s board of directors approved a quarterly dividend of 35 cents to be paid out on Sep 5, 2019 to stockholders of record as of Aug 19.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted 6.52% due to these changes.

VGM Scores

Currently, CNA Financial has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, CNA 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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