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Why Is Cincinnati Financial (CINF) Up 7.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Cincinnati Financial (CINF). Shares have added about 7.7% in that time frame, outperforming 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 drivers.

Cincinnati Financial Q3 Earnings Miss, Revenues Up Y/Y

Cincinnati Financial Corporation reported third-quarter 2020 operating income of 39 cents per share, which missed the Zacks Consensus Estimate by 4.9%. The bottom line also declined 63.9% year over year.

The company’s results reflected weak underwriting results, higher catastrophe losses and elevated costs, partly offset by higher revenues.

Operational Update 

Total operating revenues in the quarter under review were $1.7 billion, up 5% year over year. This improvement was driven by higher premiums earned and increase in investment income. However, the top line missed the Zacks Consensus Estimate by 0.5%.

Net written premiums increased 3% year over year to $1.4 billion, owing to price hikes and premium growth initiatives. Investment income improved 4% year over year to $167 million driven by improved dividends in stock portfolio and higher interest from bond portfolio.

Total benefits and expenses of Cincinnati Financial increased 14.7% year over year to $1.6 billion, primarily due to higher insurance loss and contract holders’ benefits.

In its property & casualty (P&C) insurance business, Cincinnati Financial witnessed underwriting loss of $51 million against underwriting profit of $83 million in the year-earlier period.

Combined ratio — a measure of underwriting profitability — deteriorated 940 basis points (bps) year over year to 103.6%.

Quarterly Segment Update

Commercial Lines Insurance: Total revenues of $866 million grew 4% year over year. This upside was primarily driven by solid premiums earned. The segment reported underwriting loss of $20 million against underwriting profit of $56 million in the prior-year period.  Combined ratio deteriorated 900 bps year over year to 102.4%.

Personal Lines Insurance: Total revenues of $368 million rose 4% year over year owing to 4% increase in premiums earned. The segment reported underwriting loss of $2 million, against the year-ago profit of $3 million. Combined ratio deteriorated 110 bps year over year to 100.7%.

Excess and Surplus Lines Insurance: Total revenues of $82 million rose 12% year over year, aided by 14% higher earned premiums. The segment’s underwriting profit dropped 8% year over year to $11 million. Combined ratio deteriorated 350 bps year over year to 86.7%.

Life Insurance: Total revenues were $114 million, up 7% year over year, aided by 3% higher earned premiums and 5% increased investment income.
Total benefits and expenses increased 1% year over year to $92 million due to higher contract holders’ benefits incurred.

Financial Update

As of Sep 30, 2020, Cincinnati Financial had total assets worth $26.4 billion, up 3.8% from the level at 2019 end. Total debt amounted to $911 million as of Sep 30, 2020, up 10.2% from 2019-end level.

Cincinnati Financial’s debt-to-capital ratio was 8.5% as of Sep 30, 2020, up 80 bps from end of 2019. As of Sep 30, 2020, Cincinnati Financial’s book value per share was at $60.57, up 0.03% from 2019 end.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Cincinnati Financial has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cincinnati Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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