Monday, October 28, 2013

Investing in Insurance

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It has been a pretty great time to be in the property/casualty insurance business. There has been a lack of disasters—so little in terms of payouts—while many items in an insurer’s investment portfolio (like stocks and some bonds) have surged in value.

This has kept many bullish on the sector, and especially so when compared to the shaky health insurance space. In fact, the property casualty insurance industry currently has a Rank in the top 5% according to our models, suggesting a pretty widespread bullish case for the segment.

In particular though, one company could be a solid pick in this segment, Cincinnati Financial (CINF). This company just delivered a strong earnings beat, and could be well-positioned to gain further in the months ahead.

CINF in Focus

Cincinnati Financial operates in several segments including commercial, personal, and life insurance giving it a diversified mix. However, CINF is definitely focused on the commercial segment, as this accounts for the bulk of its revenues.

The company has seen strong growth in its earned premiums when compared to 2012, while payouts have stayed pretty stable despite having more policies on the books. This has led to decent sized gains for CINF when compared to the year ago period in terms of earnings, and it has been further compounded by strength in the company’s investment portfolio as well.

Thanks to this strong trend, analysts have started to bump up their expectations for the company’s future earnings. Now, the yearly earnings estimate is up to $2.65/share from $2.22/share 90 days ago, while we have also seen positive moves in other time periods as well.

CINF also has a great track record when it comes to earnings beats, including a solid beat for the most recent quarter of 27%. The company has actually averaged a 64% beat in the past four quarters, and hasn’t missed in more than two years, so clearly it knows how to beat in earnings season.

Due to these factors, Cincinnati Financial has earned itself a Zacks Rank #1 (Strong Buy), suggesting that more outperformance is in the cards for CINF. And with a 6.7% move higher in the past month, this is definitely a solid momentum play as well.

The company is also expected to see 10.4% growth in earnings for the full year, while it is still has a PE below 20, suggesting it is a value pick. Plus, the company pays out a robust 3.3% in yield, so there is definitely income potential in this stock too.

Bottom Line

CINF is in a great industry that has a lot going for it thanks to strong asset performances and a lack of big natural disasters as of late. Due to these factors, analysts and investors have become more bullish on the insurance industry bidding up some names in the space.

Cincinnati Financial could be a great choice to play off this trend as it just beat earnings and it has a top Rank to boot. Add these factors in to a growing portfolio and a solid dividend, and investors may have a winner on their hands with this Ohio-based company.

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