Cincinnati Financial (CINF) Q2 Earnings: What's in Store?

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Cincinnati Financial Corporation CINF is slated to report second-quarter 2018 results on Jul 26 after the market closes . Last reported quarter, the company delivered a negative earnings surprise of 12.20%.

Let's see, how things are shaping up for this announcement.

Cincinnati Financial as a property and casualty (P&C) insurer has been exposed to unpredictable weather-related events and a considerable catastrophe loss. The second quarter witnessed rain storms in the United States and Canada. Therefore, we anticipate that the company has possibly incurred a certain level of cat loss in the to-be-reported quarter, which in turn, might dent its underwriting results and also impact the combined ratio.

Further, the company has likely reported an increase in total benefits and expenses, mainly driven by higher insurance loss and contract holders' benefits, underwriting, acquisition as well as insurance expenses. This in turn, might restrict the P&C insurer's operating margin expansion.  

On a positive side, Cincinnati Financial is likely to report premium growth in the to-be-reported quarter, mainly driven by several premium growth initiatives undertaken by the company, price increases as well as higher level of insured exposures. Additionally, a better-than-expected performance at Cincinnati Re, which also forms a substantial contributor to the company's earnings, might have resulted in the probable premium growth.

Owing to a slow but steady improvement in interest rates along with higher interest and dividend income, we expect the company to have witnessed considerable growth in net investment income in the to-be-reported quarter.

Cincinnati Financial is likely to report top-line growth in the soon-to-be-reported quarter, fueled by higher premiums earned as well as investment income. This apart, a gradual improvement in insurance rates and several growth initiatives are anticipated to have contributed to this possible upside. The Zacks Consensus Estimate for revenues is pegged at $1.4 billion, representing an improvement of 3.4% from the prior-year period.

Due to the occurrence of catastrophe loss, the company's bottom line might have been hampered in the quarter to be reported with the consensus mark for earnings being pegged at 54 cents, reflecting a decline of 15.6% on a year-over-year basis. However, we anticipate that continued share buybacks and lower tax rates might have offset the probable downside.

What Our Quantitative Model States

Our proven model does not conclusively show that Cincinnati Financial is likely to beat on earnings this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP : Cincinnati Financial has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 54 cents. A 0.00% ESP further makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

Cincinnati Financial Corporation Price and EPS Surprise

Cincinnati Financial Corporation Price and EPS Surprise | Cincinnati Financial Corporation Quote

Zacks Rank : Cincinnati Financial carries a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. We caution against the Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

XL Group Ltd. XL is set to report second-quarter earnings on Jul 31 and has an Earnings ESP of +6.37%. The company is a Zacks #3 Ranked player. You can see the complete list of today's Zacks #1 Rank stocks here .

Prudential Financial, Inc. PRU has an Earnings ESP of +0.09% and a Zacks Rank of 3. The company is set to announce second-quarter earnings on Aug 1.

American Financial Group, Inc. AFG has an Earnings ESP of +1.68% and a Zacks Rank of 1. The company is set to announce second-quarter earnings on Aug 1.

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Prudential Financial, Inc. (PRU): Free Stock Analysis Report

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Cincinnati Financial Corporation (CINF): Free Stock Analysis Report

American Financial Group, Inc. (AFG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: PRU , CINF , AFG

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