We are downgrading our recommendation on the shares of Cincinnati Financial (CINF) following the wider-than-expected operating loss reported by the company in second quarter 2011 owing to huge cat losses. Moreover, the Commercial Lines segment will remain somewhat weak due to the sluggish economy, although the decline in business is moderating.
The company is expected to face limited investment growth due to continued low yields for investment options. We expect pressure on top line until the soft insurance market cycle turns completely.
Our six-month target price of $25.00 equates to about 42.4x our earnings estimate for 2011. We view the $1.60 per common share annual dividend as secure, implying a negative return of about 4.7% over that period. This is consistent with our Underperform recommendation on the shares.
CINCINNATI FINL (CINF): Free Stock Analysis Report
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