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Why Is Cincinnati Financial (CINF) Down 2.6% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Cincinnati Financial Corporation (CINF - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted 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 Q2 Earnings Beat, Improve Y/Y

Cincinnati Financial reported second-quarter 2017 operating income of $0.64 per share that substantially beat the Zacks Consensus Estimate of $0.46 by 39.1%. Also, the bottom line improved 12.3% year over year, banking on strong underwriting results and a segmental performance.

Including net realized investment losses of $0.04 per share, the company’s net income plunged 18.9% year over year to $0.60 per share.

Operational Update    

Total operating revenue in the quarter was $1.4 billion, up 5.3% year over year. The top-line growth was driven by 5.8% higher premiums earned and 1.3% rise in investment income. Revenues beat the Zacks Consensus Estimate by 1.2%.

Total benefits and expenses of Cincinnati Financial increased 4.4% year over year to $1.3 billion, primarily due to higher insurance losses and contract holders’ benefits, plus underwriting, acquisition and insurance expenses.

Combined ratio – a measure of underwriting profitability – improved 100 basis points (bps) year over year to 98.3%.

Cincinnati Financial had 1,675 agency relationships as of Jun 30, 2017 compared with 1,614 as of Dec 31, 2016.

Quarterly Segment Update

Commercial Lines Insurance: Total revenue of $797 million grew 3.2% year over year. This upside was primarily driven by an increase in premiums earned. The company delivered an underwriting profit of $24 million, down 7.7% from the year-ago quarter. Combined ratio also deteriorated 30 bps year over year to 97.1%.

Personal Lines Insurance: Total revenue of $308 million rose 6.6% year over year owing to an increase in premiums earned. The segment incurred an underwriting loss of $24 million, wider than the year-ago loss of $20 million. Also, combined ratio deteriorated 90 bps year over year to 108.4%.

Excess and Surplus Lines Insurance: Total revenue of $53 million climbed 17.8% year over year, driven by higher premiums earned. The segment’s underwriting profit skyrocketed 280% year over year to $19 million. Also, combined ratio improved 2120 bps year over year to 66.2%.

Life Insurance: Total revenue of $99 million remained flat year over year. Total benefits and expenses dipped 1.2% year over year to $80 million.

Financial Update

As of Jun 30, 2017, Cincinnati Financial had assets worth $21.2 billion, up 4.1% from the 2016-end level.

Cincinnati Financial’s debt-to-capital ratio was 9.8% as of Jun 30, 2017. This reflects a slight improvement from 10.3% at the end of 2016.

As of Jun 30, 2017, Cincinnati Financial’s book value per share was a record high $44.97, up 4.7% from Dec 31, 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

Cincinnati Financial Corporation Price and Consensus

VGM Scores

At this time, Cincinnati Financial's stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 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.

The company's stock is suitable solely for momentum investors based on our style scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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