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CNA Financial Gains From Premium Growth, Cat Loss a Drag

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CNA Financial Corporation (CNA - Free Report) has made a name for itself in the property and casualty (P&C) market with a robust product and service portfolio, which includes commercial P&C insurance items. The insurer prides on a solid track record when it comes to successful servicing of its clients by catering to their diverse needs. Historically, the clients have gained a lot from the company’s bouquet of diverse insurance products and services and by retaining this favorable buzz among investors, the Zacks Rank #3 (Hold) P&C insurer continues to evolve stronger over time and looks set to retain its momentum in the near future.

Growth Drivers

CNA Financial has been witnessing premium growth over a considerable period of time, primarily driven by improving premiums across the company’s business lines. We expect the trend to be consistent on the back of increase in new business as well as a solid retention.

Despite a tough environment, CNA Financial has been able to maintain a favorable combined ratio, representing a stellar underwriting discipline. Going forward, the metric is expected to improve given the company’s prudent underwriting standards.

Given the increasing interest rates as well as stable fixed income returns, the company has been witnessing a better investment outcome. Moreover, on the back of better-than-expected investment results and a rising premium performance, the P&C insurer has displayed top-line growth over the past few years and we anticipate this positive streak to continue in the near term.

A strong liquidity position has allowed CNA Financial to fund its current and expected working capital as well as debt obligation needs. A solid financial position is likely to protect the company from market volatility and allow it to invest in new businesses and globally diversified platforms.

Further, a solid capital position has enabled the company to enhance shareholder value via dividend payouts including special dividends. With respect to dividend payment, the P&C insurer has registered a five-year CAGR (2012-2017) of nearly 38.9%. The insurer has also been paying special dividends since the past couple of years, the latest announced on Feb 9, 2018, amounting to $2 per share. Hence, these shareholder-friendly moves continue to raise optimism among investors.

Shares of CNA Financial have gained 5.5% in a year’s time, underperforming the industry’s 14.4% rally. However, we anticipate the company’s aforementioned strengths to turn the stock around in the near term.

 

 

Growth Projections: The stock has seen the Zacks Consensus Estimate for current-year earnings per share being pegged at $4.17 on revenues of $10.31 billion. While the top line reflects a year-over-year rise of 9.2%, the bottom line represents a 23.4% increase. For 2019, the consensus mark for the metric stands at $4.30 on $10.74 billion revenues. While revenues translate into a 4.1% improvement, earnings depict 3.2% growth.

Northbound Estimate Revisions: The company has witnessed an upward estimate revision for 2018 and 2019 with the estimates being raised by nearly 0.9% and 4.9%, respectively, over the last 60 days.

Positive Earnings Surprise History: CNA Financial flaunts an encouraging earnings surprise history, having outshined the Zacks Consensus Estimate in all the trailing four quarters with an average beat of 47.96%.

Near-Term Headwinds

Being a P&C insurer, the company has been bearing catastrophe loss for a considerable period of time, thus rendering volatility to the company’s results.

Also, exorbitant expenses, mainly due to higher net incurred claims and benefits and amortization of deferred acquisition costs, persist to curb the operating margin expansion.

Stocks to Consider

Some better-ranked stocks from the same space are Alleghany Corporation (Y - Free Report) , NMI Holdings, Inc. (NMIH - Free Report) and RLI Corp. (RLI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 17.61%.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company came up with positive earnings surprises in three of the trailing four quarters with an average beat of 24.55%.  

RLI Corp. underwrites property and casualty insurance in the United States and globally. The company pulled off positive surprises in each of the last four quarters with an average beat of 33.65%.

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