After reading Cincinnati Financial Corporation’s (NasdaqGS:CINF) most recent earnings announcement (30 June 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
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How Well Did CINF Perform?
CINF’s trailing twelve-month earnings (from 30 June 2019) of US$1.2b has jumped 32% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 15%, indicating the rate at which CINF is growing has accelerated. How has it been able to do this? Let’s take a look at whether it is only owing to industry tailwinds, or if Cincinnati Financial has experienced some company-specific growth.
In terms of returns from investment, Cincinnati Financial has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 5.2% exceeds the US Insurance industry of 2.5%, indicating Cincinnati Financial has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Cincinnati Financial’s debt level, has increased over the past 3 years from 5.3% to 6.9%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 13% to 9.0% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Cincinnati Financial to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CINF’s future growth? Take a look at our free research report of analyst consensus for CINF’s outlook.
- Financial Health: Are CINF’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures.
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