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CNA Financial Stock Gains 31% in a Year: Will the Rally Last?
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Shares of CNA Financial Corporation (CNA - Free Report) have gained 31% in the past year compared with the industry's growth of 28.8%. The Finance sector and the Zacks S&P 500 index have returned 27.9% and 27.1% in the said time frame, respectively. With a market capitalization of $13.87 billion, the average volume of shares traded in the last three months was 0.3 million.
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The rally was largely driven by solid premium writing underwriting expertise, a sturdy balance sheet and capital deployment, along with growth projections.
This Zacks Rank #3 (Hold) insurer has a decent earnings surprise history. It surpassed earnings estimates in two of the last four quarters and missed twice, the average being 9.09%.
CNA Financial’s trailing 12-month return on equity (ROE) expanded 80 basis points (bps) to 14% in the first half of 2024. The core ROE expanded 50 bps to 10.9% in the first half of 2024. ROE reflects the insurer’s efficiency in using shareholders’ funds.
Will the Bull Run Continue?
The Zacks Consensus Estimate for CNA Financial’s 2024 earnings per share indicates a year-over-year increase of 3.1% from the consensus estimate of 2023. The consensus estimate for revenues is pegged at $12.54 billion, implying a year-over-year improvement of 6.5% from the consensus mark of 2023. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 2.8% and 5.5%, respectively, from the corresponding 2024 estimates.
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 Financial has a solid balance sheet with capital remaining above the target levels required for all ratings. It exited the second quarter of 2024 with $11 billion in statutory surplus. CNA 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 it 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%.
Risk Factors for CNA
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.
NMI Holdings’ earnings surpassed estimates in each of the last four quarters, the average surprise being 10.15%. Shares of NMIH have jumped 40.3% in the past year. The Zacks Consensus Estimate for NMIH’s 2024 and 2025 earnings implies year-over-year growth of 16.9% and 5.2%, respectively.
Palomar Holdings’ earnings surpassed estimates in each of the last four quarters, the average surprise being 17.10%. Shares of PLMR have skyrocketed 99.8% in the past year. The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings implies year-over-year growth of 30.8% and 19.8%, respectively.
Arch Capital’s earnings surpassed estimates in each of the last four quarters, the average surprise being 28.93%. Shares of ACGL have jumped 47.6% in the past year. The Zacks Consensus Estimate for ACGL’s 2024 and 2025 earnings implies year-over-year growth of 6.6% and 2.4%, respectively.
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CNA Financial Stock Gains 31% in a Year: Will the Rally Last?
Shares of CNA Financial Corporation (CNA - Free Report) have gained 31% in the past year compared with the industry's growth of 28.8%. The Finance sector and the Zacks S&P 500 index have returned 27.9% and 27.1% in the said time frame, respectively. With a market capitalization of $13.87 billion, the average volume of shares traded in the last three months was 0.3 million.
Image Source: Zacks Investment Research
The rally was largely driven by solid premium writing underwriting expertise, a sturdy balance sheet and capital deployment, along with growth projections.
This Zacks Rank #3 (Hold) insurer has a decent earnings surprise history. It surpassed earnings estimates in two of the last four quarters and missed twice, the average being 9.09%.
CNA Financial’s trailing 12-month return on equity (ROE) expanded 80 basis points (bps) to 14% in the first half of 2024. The core ROE expanded 50 bps to 10.9% in the first half of 2024. ROE reflects the insurer’s efficiency in using shareholders’ funds.
Will the Bull Run Continue?
The Zacks Consensus Estimate for CNA Financial’s 2024 earnings per share indicates a year-over-year increase of 3.1% from the consensus estimate of 2023. The consensus estimate for revenues is pegged at $12.54 billion, implying a year-over-year improvement of 6.5% from the consensus mark of 2023. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 2.8% and 5.5%, respectively, from the corresponding 2024 estimates.
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 Financial has a solid balance sheet with capital remaining above the target levels required for all ratings. It exited the second quarter of 2024 with $11 billion in statutory surplus. CNA 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 it 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%.
Risk Factors for CNA
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 property and casualty insurance industry are NMI Holdings Inc (NMIH - Free Report) , Palomar Holdings, Inc. (PLMR - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NMI Holdings’ earnings surpassed estimates in each of the last four quarters, the average surprise being 10.15%. Shares of NMIH have jumped 40.3% in the past year. The Zacks Consensus Estimate for NMIH’s 2024 and 2025 earnings implies year-over-year growth of 16.9% and 5.2%, respectively.
Palomar Holdings’ earnings surpassed estimates in each of the last four quarters, the average surprise being 17.10%. Shares of PLMR have skyrocketed 99.8% in the past year. The Zacks Consensus Estimate for PLMR’s 2024 and 2025 earnings implies year-over-year growth of 30.8% and 19.8%, respectively.
Arch Capital’s earnings surpassed estimates in each of the last four quarters, the average surprise being 28.93%. Shares of ACGL have jumped 47.6% in the past year. The Zacks Consensus Estimate for ACGL’s 2024 and 2025 earnings implies year-over-year growth of 6.6% and 2.4%, respectively.