Avoid Cincinnati Financial, Add These Top 3 Insurance Stocks

Cincinnati Financial Corporation (NASDAQ:CINF) has been witnessing downward revisions of late. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 1.1% downward while for 2018, the consensus mark moved nearly 1% south.

The stock carries a Zacks Rank #4 (Sell) with an unimpressive Value Score of C. Back-tested results show that stocks with a Value Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy), comfortably outperform other stocks.

Shares of Cincinnati Financial have also underperformed the industry year to date. The stock has lost 1.7% in contrast to the industry’s 17% rally.

Cincinnati Financial has been incurring rising expenses over the past few years and the first nine months of 2017 were no exception. Higher insurance losses and contract holders’ benefits besides underwriting, acquisition and insurance expenses were primarily responsible for this increase. It is important to note that escalating expenses are likely to restrict operating margin expansion, which in turn might hurt the company’s overall growth.

The company witnessed a noticeable decline with respect to its bottom line in 2016 and the same trend continued in the first nine months of 2017. Therefore, the company is not expecting a major turnaround on the bottom-line front in the near term.

This apart, the company with its concentration in the Midwest region has been exposed to devastating cat events. To that end, it has been experiencing high level of catastrophe loss over a considerable period of time and the first nine months of 2017 were no exception.

The company faced the wrath of Mother Nature with an unprecedented hurricane activity in the third quarter, which induced such a massive catastrophe loss. Further, these damages also resulted in deteriorating the company’s combined ratio, a measure of profitability used by an insurance company to denote its daily operational performance.

Notably, the fourth quarter will bear the brunt of Hurricane Nate and the California wildfires, due to which the company has projected losses of not less than $1 million in each. Thus, such cat events will put a dent in the overall performance of the company.

Moreover, Cincinnati Financial’s cash flow from operations has also been on the wane over the last few years and the same was witnessed in the first nine months of 2017. Dwindlig cashflows might restrain the company's financial flexibility.

Choosing the Stocks

While Cincinnati Financial doesn’t appear to be an attractive pick right now, there are a few solid stocks in the insurance space promising greater returns. Also, these companies have outperformed the industry’s rally so far this year.

We have narrowed down to three favorable stocks with an upside potential to enhance one’s portfolio with the help of the Zacks Stock Screener. Our search is refined by using the solid Zacks Rank, northbound estimate revisions, Value Score of A or B. Buy-rated stocks with strong Value Scores are the best deals on offer.

Birmingham, AL-based Infinity Property and Casualty Corp. (NASDAQ:IPCC) offers personal automobile insurance products in the United States. The company sports a Zacks Rank of #1 with a Value Score of B. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 39% upward and for 2018, moved 6.2% north, over the last 60 days.

Shares of Infinity Property and Casualty have gained 21.8% year to date, outperforming the industry’s increase of 17% as well as Cincinnati Financial.

Headquartered in Philadelphia, PA, Radian Group Inc. (NYSE:RDN) is a credit enhancement company, supporting homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. The company has a Zacks Rank #2 with a Value Score of B. The stock has been witnessing upward estimate revisions — up 1.7% for 2017 and 1% for 2018 — over the last 60 days.

Shares of Radian Group have gained 22.4% year to date, ahead of the industry’s growth of 9.8% as well as Cincinnati Financial.

Chattanooga, TN-based Unum Group (NYSE:UNM) offers group and individual disability insurance products and services primarily in the United States and the United Kingdom. The company has a Zacks Rank of 2 with a Value Score of A. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 1.2% upward and for 2018, moved 1.1% north, over the last 60 days.

Shares of Unum Group have gained 28.3% year to date, outperforming the industry’s rise of 26.3% as well as Cincinnati Financial.

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Radian Group Inc. (RDN): Free Stock Analysis Report

Unum Group (UNM): Free Stock Analysis Report

Cincinnati Financial Corporation (CINF): Free Stock Analysis Report

Infinity Property and Casualty Corporation (IPCC): Free Stock Analysis Report

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