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Here's Why Cincinnati Financial (CINF) Stock is a Solid Bet

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Cincinnati Financial Corporation (CINF - Free Report) has been gaining momentum from its solid segment performance, effective capital deployment and solid capital position.

The stock has seen its estimates for 2021 and 2022 move up nearly 5.7% and 3%, respectively, in the past 30 days that reflects investors’ optimism.

The company has been effectively improving its return on equity (ROE) over the years. ROE of 5.6% in the trailing twelve months was better than the industry average of 5.5% and compared favorably with the prior-quarter’s figure of 5.1%. This reflects the company’s efficiency in utilizing shareholders’ fund.

The insurer is well-poised to gain from solid performance across both its segments, Commercial Lines Insurance and Excess and surplus lines.

Appropriate pricing discipline for both new and renewal business, higher new business premiums and renewal written premium growth and growth in each major line of business and increase in agency renewal written premiums in these segments are expected to drive the company’s performance going forward.

Both Cincinnati Re and Cincinnati Global experienced strong growth in 2020 in excess of 25% in 2020. Conditions in markets where they operate improved during the year and both businesses are well positioned for targeted profitable growth in 2021. While catastrophe and pandemic losses took a toll on both of those businesses, Cincinnati Re witnessed underwriting profit in 2020. Cincinnati Re is expected to continue delivering favorable performance, which will help the insurer diversify its business for better performance over a period of time.

Positive contributions from both insurance operations and investment performance increased book value by nearly 11% to a record $67.04 per share as of Dec 31, 2020.

As part of the strategic initiatives, Cincinnati Financial continues to appoint new agencies to boost growth prospects and to develop additional points of distribution.

Cincinnati Financial boasts a solid balance sheet with high liquidity and improving leverage. The debt-to-capital ratio was 7.2% in 2020, up 50 basis points year over year. Its strong cash flow fueled investment income. Cash flow from operating activities in 2020 was $1.5 billion, which grew 23% from a year ago.

Value creation ratio is the primary financial performance metric, which measures long-term progress in creating shareholder value. The metric was 14.7% in 2020, which was ahead of the insurer’s long-term objective of 10% to 13% annual average.

This property and casualty insurer raised its dividend at a seven-year (2014-2021) CAGR of 5.3%. Its current dividend yield of 2.4% is better than the industry average of 0.6%, which makes the stock an attractive pick for yield-seeking investors.

Moreover, shares of this Zacks Rank #2 (Buy) property and casualty insurer have rallied 15.5% in the year-to-date period compared with the industry’s increase of 6.7%.



The Zacks Consensus Estimate for 2021 earnings per share is pegged at $4.05, indicating year-over-year increase of nearly 23.4%.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include First American Financial Corporation (FAF - Free Report) , RLI Corporation (RLI - Free Report) and Arch Capital Group (ACGL - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First American Financial’s bottom line surpassed estimates in three of the last four quarters and missed in one, the average beat being 15.86%.

RLI Corporation surpassed earnings estimates in three of the last four quarters and missed in the other one, with the average surprise being 153.86%.

Arch Capital surpassed estimates in three of the last four quarters and missed in the other one, with the average earnings surprise being 32.14%.

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