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Cincinnati Financial (CINF) Q4 Earnings: What's in Store?

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Cincinnati Financial Corporation (CINF - Free Report) is slated to report fourth-quarter 2018 results on Feb 6, after the market closes. In the last reported quarter, the company delivered a positive surprise of 12%.

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

Cincinnati Financial is expected to have reported premium growth in the fourth quarter on the back of several premium growth initiatives undertaken by the company, price increases and probable higher premiums across its business lines. Additionally, a better-than-expected performance at Cincinnati Re, which is also a substantial contributor to the company’s earnings, might have led to this anticipated premium growth.

Further, the company’s reliance on its agent-focused business model has probably boosted premium growth in the soon-to-be-reported quarter, thus driving the insurer’s overall performance.

Riding on the strength of improving interest rates along with higher interest and dividend income, the company is likely to have experienced better-than-expected investment results in the to-be-reported quarter.

Moreover, the property and casualty (P&C) insurer is likely to deliver top-line growth in the yet-to-be-reported quarter on the back of anticipated higher premiums earned and strong investment income. This apart, a gradual improvement in insurance rates and several growth initiatives are estimated to have contributed to this possible upside. The Zacks Consensus Estimate for revenues is pegged at $1.5 billion, representing a 7.2% rise from the prior-year period.

Being a property and casualty (P&C) insurer, Cincinnati Financial has been exposed to unpredictable weather-related events and a significant level of catastrophe loss. In the fourth quarter, the company is likely to witness a substantial level of catastrophe loss, stemming from the cat events that occurred during the period. This in turn, might impact the insurer’s combined ratio, thereby hampering its underwriting performance in the period to be reported.

Further, the company is likely to have witnessed an increase in total benefits and expenses, mainly due to higher insurance loss and contract holders’ benefits, underwriting, acquisition and insurance expenses. This in turn, might restrict the insurer’s operating margin expansion.

Impact of catastrophe loss and probable higher expenses might stress the company’s bottom line in the fourth quarter. In fact, the Zacks Consensus Estimate for earnings stands at 80 cents, reflecting a decline of 13.9% from the year-ago quarter.

What Our Quantitative Model States

Our proven model does not conclusively show that Cincinnati Financial is likely to beat on earnings this season. 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.

Earnings ESP:  Cincinnati Financial has an Earnings ESP of -8.75%. This is because the Most Accurate Estimate is pegged at 73 cents, lower than the Zacks Consensus Estimate of 80 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.  

Zacks Rank: Cincinnati Financial has a Zacks Rank #3, which increases the predictive power of ESP. However, the company also needs to have a positive ESP to be confident about a likely earnings surprise. Thus, this combination leaves surprise prediction inconclusive.

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 finance sector with the perfect mix of elements to surpass estimates this time around are as follows:

Willis Towers Watson Public Limited Company (WLTW - Free Report) is set to report fourth-quarter earnings on Feb 7 and has an Earnings ESP of +0.63%. The company has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Radian Group Inc. (RDN - Free Report) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is anticipated to release fourth-quarter earnings on Feb 8.

AerCap Holdings N.V. (AER - Free Report) has an Earnings ESP of +6.84% and a Zacks Rank #2. The company is slated to announce fourth-quarter earnings on Feb 14.

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