Here's Why You Should Retain Cincinnati Financial Stock

Cincinnati Financial Corporation's CINF higher level of insured exposure, rate increase, agent-focused business model, consistent cash flow and a solid capital position make it worth retaining in one's portfolio.

It has a solid history of delivering positive surprises in the last five quarters. Earnings of this Zacks Rank #3 (Hold) insurer grew 11.9% in the last five years, better than the industry average of 10.5%.

CINF has a VGM Score of B. The Zacks Consensus Estimate for 2025 earnings per share has moved 1 cent north in the past 30 days, reflecting analyst optimism.

Shares have gained 12.8% year to date, compared with the industry's increase of 13.9%.

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Return on Equity

CINF has a return on equity ("ROE") of 9.3%, better than the industry average of 7.8%. ROE measures how efficiently a company utilizes shareholders' funds to generate profit.

Optimistic Growth Projection

The Zacks Consensus Estimate for 2024 earnings stands at $6.32 per share, suggesting an increase of 4.8% on 10.7% higher revenues of $9.8 billion. The consensus estimate for 2025 earnings per share stands at $6.99, suggesting an increase of 10.7% on 8.5% higher revenues of $10.7 billion.

The long-term earnings growth is expected to be 7.3%. We expect the 2026 bottom line to witness a three-year CAGR of 6.5%.

Business Tailwinds

Prudent pricing, an agent-centric model, a higher level of insured exposures and disciplined expansion of Cincinnati Re should benefit premiums, the primary driver of an insurer's top line. We expect 2026 net earned premiums to witness a three-year CAGR of 8.5%. CINF boasts above-average industry premium growth.

The Excess and Surplus line has been performing well since its inception in 2008. This segment should continue to benefit from new business written, higher renewal written premiums and higher average renewal estimated pricing. Technology and data are also being used to identify new exposures in emerging businesses.

Improving interest income from fixed-maturity securities and a decrease in equity portfolio dividends in an improved rate environment should drive net investment income.

Notably, its free cash flow conversion has remained more than 150% over the last many quarters, reflecting its solid earnings.

Risks

Despite the upside potential, there are a few factors that investors should keep an eye on.

Being a property and casualty insurer, CINF is exposed to catastrophe losses, inducing volatility in its underwriting profitability. Nonetheless, banking on prudent underwriting, CINF's solid track record of 34 years of favorable reserve development is appreciable. It also has a reinsurance program to limit insured loss.

CINF has been witnessing an increase in expenses over the past many years due to a rise in insurance loss and policyholder benefits as well as underwriting, acquisition and insurance expenses, resulting in margin contraction. We expect expenses to increase 10.3% in 2024. Net margin is expected to contract 292 basis points in the same year.

Impressive Dividend History

Banking on operational efficiency that ensures continuous cash flows, this insurer boasts increasing dividends for 64 straight years. Its dividend yield of 2.8% is better than the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors.  Given the board's positive outlook and confidence in outstanding capital, liquidity and financial flexibility, we expect the momentum to continue.

Stocks to Consider

Some top-ranked stocks from the insurance industry are HCI Group, Inc. HCI, Palomar Holdings PLMR and ProAssurance PRA, each sporting a Zacks Rank #1 (Strong Buy).

HCI Group earnings surpassed estimates in each of the last four quarters, the average beat being 139.15%. In the past year, HCI has rallied 45.7%.

The Zacks Consensus Estimate for HCI's 2024 and 2025 earnings implies 57.6% and 4.3% year-over-year growth, respectively.

Palomar's earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 15.10%. In the past year, PLMR's stock has surged 45.5%.

The Zacks Consensus Estimate for PLMR's 2024 and 2025 earnings indicates 26% and 18% year-over-year growth, respectively.

ProAssurance earnings surpassed estimates in two of the last four quarters and missed in the other two. In the past year, PRA's stock has lost 28.1%.

The Zacks Consensus Estimate for PRA's 2024 and 2025 earnings suggests 371.4% and 72.6% year-over-year growth, respectively.

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