A month has gone by since the last earnings report for Cincinnati Financial (CINF - Free Report) . Shares have added about 0.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cincinnati Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cincinnati Financial Q4 Earnings Beat, Revenues Lag
Cincinnati Financial reported fourth-quarter 2018 operating income of 98 cents per share, beating the Zacks Consensus Estimate of 80 cents by 22.5%. Also, the bottom line improved 5.4% year over year, mainly on lower tax rates, higher revenues and solid segmental results.
Including net realized investment losses of $3.76 per share, the company incurred net loss of $2.78 against the year-ago quarter’s net income of $3.88.
For 2018, Cincinnati Financial delivered operating income of $3.35 per share, surpassing the Zacks Consensus Estimate by 5.7%. Moreover, the bottom line rose 22.3% from the year-ago quarter.
Moreover, total operating revenues of $5.8 billion grew 4% year over year.
Total operating revenues in the quarter under review were $1.5 billion, up 4.6% year over year. This improvement was driven by 4.8% higher premiums earned and a 3.2% rise in investment income. However, the top line missed the Zacks Consensus Estimate by 1.3%.
Total benefits and expenses of Cincinnati Financial increased 6.3% year over year to $1.3 billion, primarily due to higher insurance loss and contract holders’ benefits plus underwriting, acquisition and insurance expenses plus other operating expenses.
Combined ratio — a measure of underwriting profitability — deteriorated 100 basis points (bps) year over year to 93.9%.
Quarterly Segment Update
Commercial Lines Insurance: Total revenues of $813 million grew 1.9% year over year. This upside was primarily driven by solid premiums earned. Underwriting profit of $55 million declined 5.2% from the year-ago quarter. Combined ratio deteriorated 50 bps year over year to 93.4%.
Personal Lines Insurance: Total revenues of $343 million rose 6.9% year over year owing to a substantial increase in premiums earned. The segment delivered an underwriting profit of $30 million, which soared 87.5% from the prior-year quarter. Combined ratio improved 380 bps year over year to 91.7%.
Excess and Surplus Lines Insurance: Total revenues of $61 million rose 8.9% year over year, aided by higher earned premiums. The segment’s underwriting profit of $15 million surged 36.4% year over year. Combined ratio improved 440 bps year over year to 75.4%.
Life Insurance: Total revenues of $100 million are unchanged from the year-ago quarter. Total benefits and expenses increased 13.1% year over year to $95 million.
As of Dec 31, 2018, Cincinnati Financial had total assets worth $21.9 billion, up 0.4% from the level at 2017 end.
Cincinnati Financial’s debt-to-capital ratio was 9.5% as of Dec 31, 2018, deteriorating 50 bps from 9% at the end of 2017.
As of Dec 31, 2018, Cincinnati Financial’s book value per share was $48.10, down 4.3% from the tally on Dec 31, 2017.
During the fourth quarter, the board of directors approved a 5.7% dividend hike amounting to 56 cents per share. The dividend will be paid on Apr 15, 2019 to shareholders of record as of Mar 20, 2019. The hike reflects the company’s confidence in the success of its future strategies and marks the 59th consecutive year of increasing regular annual dividends.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.25% due to these changes.
Currently, Cincinnati Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cincinnati Financial has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.