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Reasons Why You Should Retain CNA Financial (CNA) Stock

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CNA Financial Corporation (CNA - Free Report) is well-poised for growth, driven by new business opportunities, limited partnership portfolio returns and prudent capital deployment.

Growth Projections

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $3.85 and $4.25, indicating year-over-year increase of nearly 42.5% and 10.3%, respectively. The expected long-term earnings growth rate is pegged at 5%.

Earnings Surprise History

CNA Financial has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 7.9%.

Zacks Rank & Price Performance

CNA Financial currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 43.6%, outperforming the industry’s increase of 39.2%.

Zacks Investment Research
Image Source: Zacks Investment Research

Style Score

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Return on Equity (ROE)

The company’s ROE for the trailing 12 months is 7.3%, better than the industry average of 5.6% and reflecting the company’s efficiency in utilizing shareholders’ fund.

Business Tailwinds

CNA Financial is witnessing a positive trend in net premiums earned, driven by premium growth across its Specialty, Commercial and International segments.

Higher new business opportunities and strong rate, higher net investment income, and growth in Europe and Canada will continue to boost the performance of all these three business segments.

Each of the three business units have been witnessing improved underlying performance for the past several quarters.

Banking on returns in the limited partnership portfolio and common stock returns and improved non-catastrophe current accident year underwriting results, investment income is expected to improve despite the current low interest rate environment.

Combined ratio is likely to improve in the near term on the back of improved expense ratio and loss ratio, improved current accident year underwriting results as well as higher underlying underwriting profit.

While expense ratio should continue to gain from higher net earned premiums, loss ratio should benefit from higher favorable net prior year loss reserve development and lower net catastrophe losses.

In the first quarter, the P&C underlying combined ratio improved year over year and was the lowest underlying combined ratio in over 12 years.

By virtue of improved current accident year underwriting profitability and a lower level of paid losses, operating cash flow continue to remain strong. Additionally, the insurer maintained liquidity in the form of cash and short-term investments and has sufficient liquidity holdings to meet obligations and to withstand significant business variability. It maintains a conservative capital structure with a leverage ratio below 19 and continues to maintain capital above target levels.

Based on operational excellence, CNA Financial remains committed to returning more value to shareholders. Notably, its dividend payments have witnessed a CAGR of 24.1% in the past seven years (2014-2021) and currently yield 3.4%, which is better than the industry average of 0.4%. This makes the stock an attractive pick for yield-seeking investors.

Stocks to Consider

Some better-ranked players in the property and casualty industry are Cincinnati Financial Corporation (CINF - Free Report) , Fidelity National Financial (FNF - Free Report) and RLI Corp. (RLI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cincinnati Financial’s earnings surpassed estimates in three of the last four quarters and missing the mark on the remaining occasion, the average surprise being 17.63%.

Fidelity National Financial surpassed earnings estimates in each of the last four quarters, the average being 38.65%.

RLI surpassed estimates in each of the last four quarters, the average beat being 160.65%.