Yahoo Finance Here's Why Hold Strategy is Apt for CNA Financial (CNA) Stock
CNA Financial Corporation’s CNA solid premium writing underwriting expertise, a sturdy balance sheet and capital deployment, along with growth projections, make the stock worth retaining in one portfolio.
Optimistic Growth Projections
The Zacks Consensus Estimate for CNA Financial’s 2024 earnings per share indicates a year-over-year increase of 4.8% from the consensus estimate of 2023. The consensus estimate for revenues is pegged at $12.48 billion, implying a year-over-year improvement of 5.9% from the consensus mark of 2023.
The consensus estimate for 2025 earnings per share and revenues indicates an increase of 3.1% and 5.7%, respectively, from the corresponding 2024 estimates.
Northbound Estimate Revision
The Zacks Consensus Estimate for CNA Financial’s 2025 earnings has moved 1.8% north in the past 60 days. This should instill investors' confidence in the stock.
Earnings Surprise History
CNA Financial has a solid track record of beating earnings estimates in three of the last four quarters while missing in one, the average being 9.72%.
Zacks Rank & Price Performance
CNA currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 17.2% compared with the industry’s growth of 19.8%.
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Return on Equity (ROE)
In the first quarter of 2024, the company’s trailing 12-month ROE expanded 220 basis points (bps) to 14.3%. The core ROE expanded 70 bps to 11.5% in the first quarter of 2024. ROE reflects the insurer’s efficiency in using shareholders’ funds.
Business Tailwinds
CNA Financial’s premiums should continue to grow on solid retention, favorable renewal premium change and new business growth across Specialty, Commercial and International segments.
Net investment income should continue to benefit from fixed-income securities and other investments, as well as a rise in income from limited partnership and common stock investments. Favorable reinvestment yields and strong operating cash flows add to the upside. CNA Financial’s fixed-income investment strategy, with the highest allocations to diversified investment grade corporates, as well as highly rated municipal securities, should continue to drive improved investment results.
CNA has been able to maintain an underlying combined ratio below 95 for 13 straight quarters, banking on its prudent underwriting expertise.
CNA Financial has a solid balance sheet with capital remaining above the target levels required for all ratings. It exited the first quarter of 2024 with $10.9 billion in statutory surplus. CNA Financial continues to maintain a conservative capital structure with a low leverage ratio and a well-balanced debt maturity schedule. It continues to maintain liquidity in the form of cash and short-term investments, which help to sustain business variability.
Consistent cash flow generation backed by strong underwriting performance supports the insurer in distributing wealth to its shareholders. While CNA has paid special dividends for 10 years, its quarterly dividend rose at a 10-year CAGR of 5.8%.
However, CNA Financial remains exposed to catastrophe loss stemming from natural disasters and weather-related events. Catastrophe losses pose an inherent risk to the P&C insurance business because of its unpredictability, inducing volatility in the company’s results. Moreover, CNA Financial has been witnessing rising expenses over the past few years, primarily due to increasing net incurred claims and benefits and amortization of deferred acquisition costs. The company’s net operating income has been affected by this increasing trend, which, in turn, might hurt its overall profitability.
Stocks to Consider
Some better-ranked stocks from the insurance sector are Palomar Holdings, Inc. PLMR, NMI Holdings Inc. NMIH and RLI Corp. RLI. While Palomar sports a Zacks Rank #1 (Strong Buy), NMI Holdings and RLI carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Palomar’s earnings surpassed estimates in each of the last four quarters, the average surprise being 15.1%. In the past year, shares of PLMR have climbed 29.8%.
The Zacks Consensus Estimate for PLMR’s 2024 and 2025 revenues implies year-over-year growth of 26% and 18.1%, respectively.
NMI Holdings’ earnings surpassed estimates in each of the last four quarters, the average surprise being 8.60%. In the past year, shares of NMIH have jumped 31.1%.
The Zacks Consensus Estimate for NMIH’s 2024 and 2025 revenues implies year-over-year growth of 10.6% and 7.6%, respectively.
RLI’s earnings surpassed estimates in three of the last four quarters and missed in one, the average surprise being 132.39%. In the past year, shares of RLI have gained 2.9%.
The Zacks Consensus Estimate for RLI’s 2024 and 2025 revenues implies year-over-year growth of 18.4% and 3.8%, respectively.
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