Cincinnati Financial: Zacks’Bull of the Day Play

This S&P 500 dividend aristocrat—with a juicy dividend yield of more than 3%–has been increasing its dividend for the last 54 years in a row—a record matched by only eight US public companies.

Further, this Zacks Rank # 1 (Strong Buy) stock has been benefitting from an above industry average premium growth, expansion in underwriting margins and excellent performance of its diversified investment portfolio.

About the Company

Headquartered in Fairfield, OH, Cincinnati Financial (CINFAnalyst Report) is one of top 25 property and casualty insurers in the US. Formed in 1968 the company operates through the Cincinnati Insurance Company, which itself has four insurance subsidiaries, and through two financial services subsidiaries.

The company, which was started by independent insurance agents, has an agent-centered business model. They market a broad range of property casualty insurance products in 39 states.

The company enjoys excellent ratings from the top rating agencies–A.M. Best, S&P and Fitch rating of ‘A+’ and Moody’s rating of ‘A1’.

Impressive Third Quarter Results

The company reported third-quarter 2015 results on October 27. Operating income of $1.04 per share was way ahead of the Zacks Consensus Estimate of $0.69. Strong results were driven by property casualty underwriting profits and increase in investment income, partly offset by higher catastrophe losses.

Total operating revenue came in at $1.28 billion, up 4.9% year over year.  Combined ratio increased 320 bps.

Rising Estimates

After strong results, analysts have revised the earnings estimates upwards. Zacks Consensus Estimates for the current and the next year are now $3.35 per share and $2.60 per share respectively, up significantly from $2.90 and $2.40, 30 days ago.
The company has beaten the Zacks Consensus Estimates in three out of last four quarters, with an average positive surprise of 42%. In fact looking at the longer-term picture, the company has missed only in 3 out of last 20 quarters.

Positive Outlook for the Industry

“Property & Casualty Insurance” industry is currently ranked 64 out of 265 Zacks industries. Per Zacks Industry Outlook “mild catastrophe losses and continued influx of capital are expected to keep most lines of Property & Casualty insurance favorable for buyers. Also, the ongoing reserve development will continue to support insurers’ financials. Moreover, increasing demand from the economically recuperating American households should eventually place insurers in a favorable pricing cycle.”

The Bottom Line

CINF is a Zacks Rank#1 (Strong Buy) stock. Further a favorable Zacks Industry Rank also indicates the likelihood of outperformance in the short-to-medium term.

With a dividend yield of 3.01% and excellent growth potential, I believe that this stock will be a nice addition to any portfolio.

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