Cincinnati Financial Corporation (CINF) is engaged in property casualty insurance marketed through independent insurance agents in 39 states. On July 25, 2013, the company reported second quarter earnings of $0.66 per share, which beat the consensus of analysts' estimates by $0.24. The company is scheduled to delivery third quarter earnings on October 24, 2013 after the close of the market. Since last writing about the company on September 19, 2013, the stock is up 5.91%, and is beating the S&P 500, which has gained 1.1% in the same time frame. Unfortunately I did not buy into the stock at that time. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying shares of the company right now for the financial sector of my dividend growth portfolio before earnings.
The company currently trades at a trailing 12-month P/E ratio of 14.49, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 19.77 is currently fairly priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $2.53 per share while the trailing twelve month earnings per share were $3.45. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.36% with a payout ratio of 49% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.4%, 10.2% and 6.6%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.36% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 53 years at a 5-year dividend growth rate of 2.9%. Below is a comparison table of the financial metrics for the company from the time I wrote the last article to what it is right now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in overbought territory with a value of 72.58 with upward trajectory indicating a bullish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars increasing in height, also indicating a bullish pattern. As for the stock price itself ($49.99), I'm looking at $50.64 to act as resistance and $48.90 to act as support for a risk/reward ratio, which plays out to be -2.18% to 1.3%.
- The company stated that rising interest rates did not take a bite out of book value from lower bond prices (decline of 3.6% in bond portfolio) as it was offset by an increase in its stock portfolio (5.6%).
As you can see from the fundamentals section analysts have began to increase their earnings estimates for the company. There is not a doubt in my mind the estimates are being raised based on the note I stated in the recent news section. Nonetheless, the company is fairly priced based on future valuation but I'd like to see next year's earnings estimates increase beyond last year's earnings before buying more into the stock. The technical situation of how the stock is trading is telling me that it has gotten long in the tooth and I do not doubt that the price will stagnate into earnings and probably take a hit on earnings as it is in overbought territory. I'm going to take another pass on this stock right now and evaluate again after earnings.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing.