We are downgrading our recommendation on
Cincinnati Financial Corp.
) to Neutral from Outperform, reflecting our concern regarding
potential first-quarter earnings drain due to weather-related
losses. Cincinnati Financial currently carries a Zacks Rank #3
Why the Downgrade?
We are concerned with weather losses that are expected to
adversely affect Cincinnati Financial's first-quarter 2014
results. Two winter storms in the first week of Jan 2014 will
cost an estimated $65 million to $85 million in catastrophe
losses in the company's property casualty segments.
Moreover, low interest rates expected to continue for some time
now, might adversely affect investment income - an important
component of Cincinnati Financial's revenues and net income. The
company has also experienced investment portfolio problems as a
result of equity investments, which constituted a significant
portion of its portfolio.
While weather conditions have always rendered the company's
financial results volatile, we believe efficient execution of
Cincinnati Financial's strategic initiatives will continue to
generate returns over time.
Last week, Cincinnati Financial reported fourth-quarter 2013
operating earnings of 72 cents per share, exceeding the Zacks
Consensus Estimate of 69 cents. Earnings, however, declined 35%
year over year.
The earnings beat came on the back of increased premium income
and strong contribution from all of the company's Personal,
Commercial as well as Excess and Surplus lines.
Other Stocks to Consider
Better-ranked property and casualty insurers like
Greenlight Capital Re, Ltd.
Navigators Group Inc.
), all with a Zacks Rank #1 (Strong Buy), are worth
CINCINNATI FINL (CINF): Free Stock Analysis
GREENLIGHT CAP (GLRE): Free Stock Analysis
NAVIGATORS GRP (NAVG): Free Stock Analysis
RLI CORP (RLI): Free Stock Analysis Report
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