Cincinnati Financial (CINF) Down 17.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Cincinnati Financial (CINF). Shares have lost about 17.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Cincinnati's Q1 Earnings Miss Estimates, Down Y/Y

Cincinnati Financial Corporation reported first-quarter 2020 operating income of 84 cents per share, which missed the Zacks Consensus Estimate by 23.6%. Further, the bottom line deteriorated 20% year over year.

The company’s earnings were impacted by lower underwriting income across its property & casualty (P&C) business, primarily due to high underwriting expenses, and loss and loss expenses.

Operational Update

Total operating revenues in the quarter under review were $1.6 billion, up 8.7% year over year. This improvement was driven by 9% higher premiums earned and a 5% rise in investment income. The top line also outpaced the Zacks Consensus Estimate by 4%.

Net written premiums improved 10% from the prior-year quarter to $1.5 billion, reflecting price increases and premium growth initiatives.

Total benefits and expenses of Cincinnati Financial increased 14.3% year over year to $1.5 billion, primarily due to higher insurance losses and contract holders’ benefits plus underwriting, acquisition and insurance expenses.

Combined ratio — a measure of underwriting profitability — expanded 550 basis points (bps) year over year to 98.5%.

Quarterly Segment Update

Commercial Lines Insurance: Total revenues of $864 million grew 7% year over year. This upside can primarily be attributed to solid premiums earned. It reported underwriting loss of $20 million against the prior-year quarter’s underwriting profit of $76 million. The combined ratio also expanded 1170 bps year over year to 102.5%.

Personal Lines Insurance: Total revenues of $360 million rose 4% year over year owing to 4% increase in premiums earned. The segment generated underwriting profit of $21 million against the prior-year quarter’s loss of $4 million. The combined ratio contracted 700 bps year over year to 94.3%.

Excess and Surplus Lines Insurance: Total revenues of $79 million climbed 23% year over year, aided by 24% higher earned premiums. However, the segment’s underwriting profit of $9 million declined 18% year over year. The combined ratio expanded 560 bps year over year to 89.1%.

Life Insurance: Total revenues were $74 million, down 29% year over year.

Financial Update

As of Mar 31, 2020, cash and cash equivalents were $486 million, down 36.6% from the 2019-end level.

Total assets of $23.4 billion declined 8% from the figure at 2019 end.

Long-term debt amounted to $788 million, which remained flat with the number at 2019 end.

Cincinnati Financial’s debt-to-capital ratio was 10.1% as of Mar 31, 2020, expanding 240 bps from the number at 2019 end.

As of Mar 31, 2020, its book value per share was at $50.02, down 17.4% from the figure at 2019 end.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Cincinnati Financial has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cincinnati Financial has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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