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Cincinnati Financial's (CINF) Q1 Earnings: Cat Loss to Hurt?

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Cincinnati Financial Corporation (CINF - Free Report) is slated to report first-quarter 2018 results on Apr 25 after the market closes. Last quarter, the company delivered a positive surprise of 8.14%.

Let’s see, how things are shaping up for this announcement.

Factors to be Considered This Quarter

Cincinnati Financial as a property and casualty (P&C) insurer has been exposed to unpredictable weather-related events and a considerable catastrophe loss. Therefore, the company has possibly incurred cat loss in the first quarter, which in turn might dent its underwriting results and also impact the combined ratio.

Further, the company has likely reported an increase in total benefits and expenses, mainly driven by higher insurance loss and contract holders’ benefits, underwriting, acquisition plus insurance expenses. This in turn might restrict the P&C insurer’s operating margin expansion.  

Nonetheless, Cincinnati Financial is expected to report top-line growth in the soon-to-be-reported quarter, fueled by higher premiums earned. This apart, a gradual improvement in insurance rates and several growth initiatives are anticipated to have contributed to this probable upside.

The Zacks Consensus Estimate for revenues is pegged at $1.4 billion, representing an improvement of 4.5% from the prior-year quarter.

The company is likely to witness an increase in premiums written in the first quarter, attributable to a controlled expansion of Cincinnati Re that forms a substantial contributor to the P&C insurer’s earnings.

Cincinnati Financial is estimated to have witnessed considerable growth in net investment income in the yet-to-be-reported quarter, mainly owing to improved interest rates as well as higher interest and dividend income.

The tax cut, which reduced the tax rate to 21% from 35%, will aid the companies’ bottom line, boosting margins directly.

The Zacks Consensus Estimate for earnings is pegged at 82 cents, reflecting a rise of 38.9% on a year-over-year basis.

 

Earnings Whispers

Our proven model does not conclusively show that Cincinnati Financial is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Cincinnati Financial has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 82 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Cincinnati Financial carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against the Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

Kemper Corporation (KMPR - Free Report) is set to report first-quarter earnings on Apr 30. The stock has an Earnings ESP of +23.79% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Allstate Corporation (ALL - Free Report) has an Earnings ESP of +3.79% and a Zacks Rank of 3. The company is scheduled to announce first-quarter earnings on May 1.

American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +2.40% and a Zacks Rank #2. The company is about to release first-quarter earnings on May 2.

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