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Cincinnati Financial (CINF) Up 14.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Cincinnati Financial (CINF - Free Report) . Shares have added about 14.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cincinnati Financial due for a pullback? 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.

Cincinnati Financial Q4 Earnings Top, Revenues Rise Y/Y

Cincinnati Financial Corporation reported fourth-quarter 2020 operating income of $1.61 per share, which outpaced the Zacks Consensus Estimate by 37.6%. Moreover, the bottom line improved 31% year over year.

The company’s results benefited from improved revenues and strong underwriting results, partly offset by higher catastrophe losses and escalating costs.

Operational Update  

Total operating revenues in the quarter under review were $1.7 billion, which improved 5.1% year over year. This improvement was driven by higher earned premiums and investment income. Also, the top line surpassed the consensus mark by 7.5%.

Net written premiums climbed 7% year over year to $1.4 billion attributable to price increases and premium growth initiatives. Investment income, net of expenses increased 2% year over year to $172 million owing to improved dividends in stock portfolio and higher interest income.

Total benefits and expenses of Cincinnati Financial inched up 0.5% year over year to $1.4 billion, primarily due to higher underwriting, acquisition and insurance expenses, and increased interest expense. In its property & casualty (P&C) insurance business, Cincinnati Financial witnessed underwriting profit of $187 million, which surged 57% year over year.
Combined ratio — a measure of underwriting profitability — improved 430 basis points (bps) year over year to 87.3%.

Quarterly Segment Update

Commercial Lines Insurance: Total revenues of $878 million improved 3% year over year. This upside was primarily driven by solid premiums earned. The segment reported underwriting profit of $96 million, which dipped 1% year over year.  Combined ratio deteriorated 40 bps year over year to 89.2%.
Personal Lines Insurance: Total revenues of $374 million advanced 4% year over year on account of 4% increase in premiums earned. The segment reported underwriting profit of $71 million, which increased by nearly 18-fold from the prior-year quarter. Combined ratio improved 1800 bps year over year to 81.3%.

Excess and Surplus Lines Insurance: Total revenues of $88 million grew 16% year over year, aided by 14% higher earned premiums. The segment’s underwriting profit improved 15% year over year to $15 million. Combined ratio deteriorated 30 bps year over year to 83.2%.

Life Insurance: Total revenues were $114 million, up 8% year over year, courtesy of 6% higher earned premiums and 5% increased investment income. Total benefits and expenses inched up 1% year over year to $95 million due to higher underwriting expenses incurred.

Financial Update

As of Dec 31, 2020, Cincinnati Financial had total assets worth $27.5 billion, up 8.4% from the level at 2019 end. Total debt amounted to $842 million as of Dec 31, 2020, up 1.8% from 2019-end level. Cincinnati Financial’s debt-to-capital ratio was 7.2% as of Dec 31, 2020, down 50 bps from end of 2019.
As of Dec 31, 2020, Cincinnati Financial’s book value per share was at $67.04, up 10.7% from 2019 end.

Full-Year Update

For 2020, operating income was $3.28 per share, which surpassed the Zacks Consensus Estimate of $2.85. However, the bottom line plunged 22% from the 2019-end figure.

Total revenues for the year amounted to $7.5 billion, which outpaced the consensus mark of $6.42 billion. However, the top line declined 5% year over year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 10.27% due to these changes.

VGM Scores

Currently, Cincinnati Financial has a subpar Growth Score of D, though it is lagging a bit 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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