Cincinnati Financial (CINF) Q3 Earnings: Cat Losses To Hurt?

Cincinnati Financial Corporation (NASDAQ:CINF) is slated to report third-quarter 2017 results on Oct 26, after the market closes. Last quarter, the company delivered a positive earnings surprise of 39.13%. Let’s see how things are shaping up for this announcement.

Factors to be Considered This Quarter

With the occurrence of Hurricanes Harvey, Irma and Maria during the third quarter as well as the Mexico earthquakes, Cincinnati Financial’s underwriting results will be significantly impacted in the soon-to-be-reported quarter. The massive catastrophe losses will not only affect underwriting profitability but also render volatility to the company’s earnings. In fact, the Zacks Consensus Estimate for the third quarter of 2017 is 53 cents that represents a noticeable decline of 38.4% from the prior-year quarter.

Notably, the property and casualty (P&C) insurer’s unit, The Cincinnati Insurance Companies’ property casualty group, has projected third-quarter 2017 pre-tax catastrophe losses to range between $102 million and $114 million, approximately. This will leave an impact on the third-quarter combined ratio of about 860-960 basis points on the basis of estimated property casualty earned premiums.

Additionally, the company projects its third-quarter property casualty combined ratio to range between 98.5% and 101.5%, including the effect of catastrophe losses.

Further, the company has possibly recorded an increase in total benefits and expenses, mainly driven by higher insurance losses and contract holders’ benefits, underwriting, acquisition and insurance expenses as well as other operating costs. This in turn might restrict the P&C insurer’s operating margin expansion.

However, Cincinnati Financial is likely to report top-line growth in the third quarter, fueled by higher premiums earned. To that end, the Zacks Consensus Estimate for the third quarter of 2017 is $1.4 billion that represents an increase of 3.5% from the prior-year quarter.

Also, investment results likely have improved backed by an increase in both interest and dividend income.

Earnings Whispers

Our proven model does not conclusively show that Cincinnati Financial is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Cincinnati Financial has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 53 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Cincinnati Financial carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. Hence, we caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to come up with an earnings beat this quarter are as follows:

Prudential Financial (NYSE:PRU) is set to report third-quarter earnings on Nov 1 with an Earnings ESP of +0.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lincoln National Corporation (NYSE:LNC) has an Earnings ESP of +0.05% and also holds a Zacks Rank of 2. The company is slated to report third-quarter earnings on Nov 1.

American Equity Investment Life Holding Company (NYSE:AEL) has an Earnings ESP of +0.40% and sports a Zacks Rank of 2. The company is set to report third-quarter earnings on Nov 6.

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