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Cincinnati Financial (CINF) on Growth Gear: Should You Hold?

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Cincinnati Financial Corporation (CINF - Free Report) dwells on growth prospects like strategic initiatives, improving market conditions and the ability to generate decent cash flows. The Zacks Rank #3 (Hold) property and casualty insurer holds immense potential owing to a few good growth drivers.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $2.66 for 2017 and $3.03 for 2018. Though the estimate for 2017 reflects a year-over-year decline of 13.4%, the same for 2018 will rebound to 13.7% growth. Revenues for both 2017 and 2018 are expected to increase about 3% and 4%, respectively.

Northbound Estimates: The Zacks Consensus Estimate for 2017 has inched up 1.1% and 1.7% for 2018 over the last 60 days.

An Outperformer: Shares of Cincinnati Financial have gained 6.2% quarter to date, outperforming the industry’s increase of 4.4%. The shares have also outperformed the S&P 500, gaining 2.2% over the same time frame.


Positive Earnings Surprise History: Cincinnati Financial has surpassed the Zacks Consensus Estimate in the last nine quarters with an average beat of 30.56%.

Growth Drivers in Place

Commercial Lines Property Casualty Insurance segment is expected to retain the momentum of delivering better results, banking on growth initiatives and increase in rates. We expect moderate top-line growth at the segment as competitive pressures will somewhat offset modest price increases.

Also an improving excess and surplus lines market should continue to drive performance at Excess and Surplus line.

Appointing new agencies has been one of the key strategic initiatives adopted by Cincinnati Financial to shore up its premium. To that end, the company plans to appoint about 100 additional agencies that focus on high net worth personal lines clients and will market only personal lines products in 2017. Also, 100 independent agencies’ appointments remain in plan for property casualty insurance products in 2017.

The company has been witnessing progress in net investment income despite a sustained low interest rate environment. With gradual improvement in interest rate, we expect the momentum to continue.

Cincinnati Financial’s reliance on debt as a capital source has been low. Also, consistent cash flow and sufficient cash balances continue to boost liquidity.

A strong capital position aids the company to return value to shareholders. For the past 57 years, Cincinnati Financial has been constantly hiking dividends, a record matched by only eight other publicly-traded companies in the United States. Its current dividend yield is 2.6%, better than the industry average of 1.7%. The company also engages in regular buybacks. All these make Cincinnati Financial an attractive pick for yield-seeking investors.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Atlas Financial Holdings, Inc. (AFH - Free Report) , Markel Corporation (MKL - Free Report) and Mercury General Corporation (MCY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%

Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%.

Mercury General Corporation engages in writing personal automobile insurance in the United States. The company delivered positive surprises in three of the trailing four quarters with an average beat of 1.06%.

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