Operational Efficiency And Strong Underwriting Will Support Future Success

Key Takeaways

• Strong underwriting performance and efficient operations indicate growth, with robust premium growth and high retention likely boosting future earnings.
  
• Rate increases and expense discipline, along with higher investment income, are expected to support margin expansion and strengthen total earnings.
  
• Elevated catastrophe losses and unfavorable developments in key areas may lead to increased underwriting volatility and pressure on CNA Financial's future earnings.

Catalysts

An insurance holding company, primarily provides commercial property and casualty insurance products in the United States and internationally.

• CNA Financial is achieving high single-digit growth in both gross written premiums and net written premiums, driven by new business and strong retention rates, which will likely impact revenue positively.
  
• Continued rate increases across several business lines, specifically in areas impacted by social inflation, are expected to support revenue growth and margin expansion by exceeding long-run loss cost trends.
  
• Record levels of core income and underlying underwriting gains indicate operational efficiency and strong underwriting performance, likely boosting future earnings.
  
• Investment income is projected to continue growing, with a 2% increase in 2025 driven by favorable reinvestment rates in fixed income portfolios, which is anticipated to strengthen total earnings.
  
• Sustained expense discipline and investment in technology have led to improved expense ratios, potentially contributing to enhanced net margins going forward.

CNA Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNA Financial's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 9.8% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $6.11) by about March 2028, up from $959.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 13.9x today. This future PE is lower than the current PE for the US Insurance industry at 13.9x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.47%, as per the Simply Wall St company report.

CNA Financial Future Earnings Per Share Growth

Risks

• The company experienced elevated catastrophe losses impacting both revenue and net margins, which could lead to increased underwriting volatility and affect future earnings.
  
• The underlying loss ratio in the P&C segment increased, which could pressure future earnings as it may indicate rising loss costs.
  
• There is unfavorable development in some areas like commercial auto and professional and management liability lines, potentially affecting future profitability and net margins.
  
• The International segment suffered from foreign currency exchange losses, which could adversely impact earnings in volatile currency environments.
  
• A significant portion of income comes from investments, with anticipated lower gains from short-term portfolios due to potential declines in short-term rates, potentially reducing future revenue and earnings growth.

Valuation

• The analysts have a consensus price target of $48.0 for CNA Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $53.0, and the most bearish reporting a price target of just $43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $17.1 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 6.5%.
• Given the current share price of $49.07, the analyst price target of $48.0 is 2.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.