Cincinnati Financial (CINF) Down 4.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Cincinnati Financial (CINF). Shares have lost about 4.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Cincinnati Financial due for a breakout? 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 Q2 Earnings & Revenues Beat
Cincinnati Financial reported second-quarter 2020 operating income of 44 cents per share, which beat the Zacks Consensus Estimate by 7.3%. However, the bottom line decreased 48.2% year over year.
The company’s results reflected higher net written premiums, which boosted revenues across all its segments, offset by higher catastrophe losses and expenses.
Total operating revenues in the quarter under review were $1.7 billion, up 6.8% year over year. This improvement was driven by higher premiums earned and increase in investment income. Revenues surpassed the Zacks Consensus Estimate by 0.8%.
Net written premiums increased 6% year over year to $1.6 billion, owing to an increase in agency renewal written premiums and other written premiums.
Total benefits and expenses of Cincinnati Financial increased 13.4% year over year to $1.6 billion, primarily due to higher insurance loss and contract holders’ benefits, increased underwriting, acquisition and insurance expenses plus interest expense and other operating expenses.
Cincinnati Financial witnessed underwriting loss of $41 million against underwriting gain of $48 million in the year-earlier period, primarily due to higher catastrophe losses of $231 million and $65 million of pandemic-related loss and expense effects.
Combined ratio — a measure of underwriting profitability — deteriorated 660 basis points (bps) year over year to 103.1%.
Quarterly Segment Update
Commercial Lines Insurance: Total revenues of $871 million grew 5.7% year over year. This upside was primarily driven by solid premiums earned. Underwriting profit of $8 million dropped 33.3% year over year. Combined ratio deteriorated 50 bps year over year to 99.1%.
Personal Lines Insurance: Total revenues of $365 million rose 4.6% year over year owing to 5% increase in premiums earned. The segment reported underwriting loss of $43 million, against the year-ago profit of $5 million. Combined ratio deteriorated 1340 bps year over year to 112.3%.
Excess and Surplus Lines Insurance: Total revenues of $78 million rose 16% year over year, aided by 16% higher earned premiums. The segment’s underwriting loss was $1 million against the year-ago profit of $17 million. Combined ratio deteriorated 2590 bps year over year to 102%.
Life Insurance: Total revenues were $120 million, up 14% year over year, aided by 18% higher earned premiums. Total benefits and expenses increased 9.5% year over year to $104 million due to higher contract holders’ benefits incurred and underwriting expenses.
As of Jun 30, 2020, Cincinnati Financial had total assets worth $25.5 billion, up nearly 0.2% from the level at 2019 end.
Cincinnati Financial’s debt-to-capital ratio was 8.9% as of Jun 30, 2020, up 120 bps from end of 2019.
As of Jun 30, 2020, Cincinnati Financial’s book value per share was at $57.56, down 5% from 2019 end.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
At this time, Cincinnati Financial has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, 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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