On Aug 30, we downgraded our recommendation on the shares of
Cincinnati Financial Corp.
) to Neutral from Outperform. Though the company posted better
than expected second quarter earnings, its greater than average
exposure to catastrophes, weak personal lines business and a low
interest rate environment keeps us on the sidelines.
Cincinnati Financial's Personal Lines business has been
underperforming over the past few years. The personal lines unit
continues to report soft margins. Despite the company's efforts
to apply predictive modeling for pricing and raise rates in some
lines, in order to save margins, the segment will not see
underwriting profitability in the near term, given the stiff
competitive market conditions in this line of business.
Cincinnati Financial also faces some headwinds due to a low
interest rate environment.
Moreover, the company's operations are prone to catastrophe
losses, imparting volatility to the earnings.
Counting on the positives, Cincinnati Financial is
continuously witnessing improving business conditions in
Commercial and Excess and Surplus lines insurance
A strong relationship with its agencies also bodes well for
With respect to earnings results, second quarter 2013
operating earnings of 61 cents per share were significantly
exceeding the Zacks Consensus Estimate of 32 cents per share and
3.6 times higher than 17 cents reported in the year ago
The earnings beat came on the back of increased underwriting
profits from each of the three property casualty segments.
Other Stocks to Consider
Besides Cincinnati Financial which is carrying a Zacks Rank #3
HCI Group Inc.
Everest Re Group Ltd.
State Auto Financial Corp.
) all carrying favorable Zacks Rank #1 (Strong Buy) and look
CINCINNATI FINL (CINF): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
STATE AUTO FINL (STFC): Free Stock Analysis
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