Why Cincinnati Financial (CINF) is Unlikely to Beat Earnings

Cincinnati Financial Corp. (CINF) is scheduled to report its second-quarter 2014 results after the market close on Jul 29.

In the last quarter, this property and casualty insurer delivered a 14.6% negative earnings surprise. However, prior to that, the company had delivered positive earnings surprises for three quarters in a row. The average beat for the trailing four quarters is 26.9%.

Let's see what factors might have influenced the earnings report this time around.

Factors Likely to Influence Q2 Results

The company’s second-quarter results will be affected by a weakness in its personal lines insurance in which new business premiums might have been under pressure. Higher premium rates and greater precisions in pricing would check premium growth.

Moreover a continuing low interest rate environment might affect investment income – an important component of Cincinnati Financial’s revenues and net income.

However, increase in renewal rates on the commercial line insurance will generate higher contribution from the segment.

The company also maintains that strong agent growth will bring in more business.

Moreover, the company’s intelligent use of capital by way of share buyback will aid the bottom line.

Earnings Whispers

Our proven model does not conclusively show that Cincinnati Financial’s is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as elaborated below.

Zacks ESP: Cincinnati Financial’s Most Accurate estimate is pegged at 42 cents per share, which is in line with the Zacks Consensus Estimate. The Earnings ESP is thus 0.00%.

Zacks Rank: Cincinnati Financial has a Zacks Rank #4 (Sell) which lowers the predictive power of ESP. We caution against stocks with Zacks Rank #4 and 5 going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

HCC Insurance Holdings Inc. (HCC) has an earnings ESP of +2.25% and Zacks Rank #2.

AFLAC Inc. (AFL) has an earnings ESP of +0.63% and a Zacks Rank #2.

Protective Life Corp. (PL) has an earnings ESP of +0.83% and a Zacks Rank #3.

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