Cincinnati Financial Corp Valuation – February 2018 $CINF

Company Profile (obtained from Marketwatch): Cincinnati Financial Corp. engages in the provision of property casualty and life insurance services. It operates its business through following segments: Commercial Lines Insurance; Personal Lines Insurance; Excess and Surplus Lines Insurance; Life Insurance; and Investments. The Commercial Lines Insurance segment includes commercial casualty, commercial property, commercial auto, worker’s compensation, and other commercial lines insurance. The Personal Lines Insurance segment manages personal auto, homeowner, and other personal lines insurance. The Excess and Surplus Lines Insurance segment covers business risks such as the nature of the business or its claim history, that are difficult to profitably insure in the standard commercial lines market. The Life Insurance segment offers term life insurance, universal life insurance, worksite products, and whole life insurance services. The Investment segment generates revenue from the fixed-maturity investment and equity investment. The company was founded by John Jack Schiff Sr., Robert Cleveland Schiff, and Harry M. Turner in 1968 and is headquartered in Fairfield, OH.

CINF Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CINF – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,231,884,533 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 115.44% Pass
5. Moderate PEmg Ratio PEmg < 20 18.15 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.50 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $4.11
MG Growth Estimate 7.88%
MG Value $99.74
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $59.60
MG Value based on 0% Growth $34.94
Market Implied Growth Rate 4.82%
Current Price $74.59
% of Intrinsic Value 74.78%

Cincinnati Financial Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.69 in 2014 to an estimated $4.11 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Cincinnati Financial Corporation revealed the company was trading above its Graham Number of $58.26. The company pays a dividend of $2 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.15, which was below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Cincinnati Financial Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $58.26
PEmg 18.15
PB Ratio 1.50
Dividend Yield 2.68%
TTM Dividend $2.00
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $851,000,000
Total Assets $21,843,000,000
Intangible Assets $0
Total Liabilities $13,600,000,000
Shares Outstanding (Diluted Average) 165,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.00
Dec2017 $6.29
Dec2016 $3.55
Dec2015 $3.83
Dec2014 $3.18
Dec2013 $3.12
Dec2012 $2.57
Dec2011 $1.01
Dec2010 $2.30
Dec2009 $2.65
Dec2008 $2.62
Dec2007 $4.97
Dec2006 $5.30
Dec2005 $3.40
Dec2004 $3.28
Dec2003 $2.10
Dec2002 $1.32
Dec2001 $1.08
Dec2000 $0.66
Dec1999 $1.38
Dec1998 $1.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.11
Dec2017 $4.44
Dec2016 $3.43
Dec2015 $3.16
Dec2014 $2.69
Dec2013 $2.41
Dec2012 $2.11
Dec2011 $2.16
Dec2010 $3.01
Dec2009 $3.51
Dec2008 $3.93
Dec2007 $4.33
Dec2006 $3.70
Dec2005 $2.68
Dec2004 $2.10
Dec2003 $1.45
Dec2002 $1.13

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017
Best Dividend Paying Stocks for Dividend Growth Investors – February 2017
Best Dividend Paying Stocks for Dividend Growth Investors – January 2017
Best Dividend Paying Stocks for Dividend Growth Investors – December 2016

Other ModernGraham posts about related companies

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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