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Here's Why Hold Strategy is Apt for CNA Financial (CNA) Stock

CNA Financial Corporation CNA is well-poised for growth on higher retention, new business opportunities, lower underwriting expenses and strong liquidity position.

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

The property and casualty insurer’s top-line results reflect continued premium growth and rate momentum. The Zacks Consensus Estimate for the company’s 2021 revenues is pegged at $10.47 billion, indicating a year-over-year increase of 9.2%. The premium growth across its three operating segments namely, Specialty, Commercial and International, is likely to gain from renewal premium change, higher retention and new business opportunities.

Despite the current low interest rate environment, investment income is poised to gain from favorable returns from limited partnership and common stock returns, favorable current accident year underwriting results, higher favorable net prior period loss reserve development in the current year, and higher yields in fixed income portfolio. Such strong net investment income and underlying underwriting performance in turn will aid the core income of the property & casualty operations.

CNA Financial has maintained underlying combined ratio below 95% for consecutive six quarters. Its underlying combined ratio of 92.6% in the third quarter of 2020 was the lowest in over a decade. Combined ratio is likely to improve in the near term on the back of improved current accident year underwriting results, higher underlying underwriting profit, and lower net catastrophe losses and claim-handling expenses.

Given lower underwriting and acquisition expenses as well as higher net earned premiums, expense ratio is also expected to improve.

Furthermore, it continues to maintain a conservative capital structure with a low leverage ratio and a well-balanced debt maturity schedule. At third-quarter end, its capital remained above target levels required for all current ratings.

In addition to strong operating cash flow aided by higher premiums and lower paid losses, it also has sufficient liquidity holdings to meet obligations and withstand significant business variability.

Such stable cash flow profile supports an attractive annual dividend, yielding 3.7%, and betters the industry average of 0.6%, making this an attractive pick for yield-seeking investors.

The Zacks Consensus Estimate for 2021 earnings per share is pegged at $3.98, indicating a rise of 57.3% from the year-earlier reported number. The expected long-term earnings growth is pegged at 5%.

Moreover, shares of this property and casualty insurer, currently carrying a Zacks Rank #3 (Hold), have gained 25.9% in the past six months, outperforming the industry’s increase of 20.3%.

Stocks to Consider

Some better-ranked stocks in the property and casualty industry include Fidelity National Financial, Inc. FNF, NMI Holdings Inc NMIH and The Allstate Corporation ALL. While Fidelity National Financial sports a Zacks Rank #1 (Strong Buy), NMI Holdings and The Allstate carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fidelity National surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 30.48%, on average.

NMI Holdings surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 16.97%, on average.

The Allstate surpassed bottom-line estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 38.59%, on average.

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The Allstate Corporation (ALL): Free Stock Analysis Report
 
CNA Financial Corporation (CNA): Free Stock Analysis Report
 
Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
 
NMI Holdings Inc (NMIH): Free Stock Analysis Report
 
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