Company Profile (excerpt from Reuters): Cincinnati Financial Corporation, incorporated on March 4, 1992, is an insurance holding company. As of December 31, 2016, the Company was engaged in the business of property casualty insurance marketed through independent insurance agencies in 41 states. The Company operates through five segments: Commercial lines insurance, Personal lines insurance, Excess and surplus lines insurance, and Life insurance and Investments. The Company’s subsidiaries include The Cincinnati Insurance Company, CSU Producer Resources Inc. and CFC Investment Company. The Cincinnati Insurance Company owns four additional insurance subsidiaries. The Company’s market property casualty insurance group includes two of those subsidiaries: The Cincinnati Casualty Company and The Cincinnati Indemnity Company. This group writes a range of business, homeowner and auto policies. Other subsidiaries of The Cincinnati Insurance Company includes The Cincinnati Life Insurance Company, which provides life insurance, disability income policies and fixed annuities, and The Cincinnati Specialty Underwriters Insurance Company, which offers excess and surplus lines insurance products.
Downloadable PDF version of this valuation:
ModernGraham Valuation of CINF – January 2019
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 | $39,190,000,000 | 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 | 151.17% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 16.06 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.52 | 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 | $4.82 |
| MG Growth Estimate | 11.84% |
| MG Value | $155.08 |
| Opinion | Undervalued |
| MG Grade | A |
| MG Value based on 3% Growth | $69.89 |
| MG Value based on 0% Growth | $40.97 |
| Market Implied Growth Rate | 3.78% |
| Current Price | $77.42 |
| % of Intrinsic Value | 49.92% |
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 $4.82 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.78% 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 $76.19. The company pays a dividend of $2 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.06, which was below the industry average of 32.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Cincinnati Financial Corporation fares extremely well in the ModernGraham grading system, scoring an A.
Stage 3: Information for Further Research
| Graham Number | $76.19 |
| PEmg | 16.06 |
| PB Ratio | 1.52 |
| Dividend Yield | 2.58% |
| TTM Dividend | $2.00 |
| Number of Consecutive Years of Dividend Growth | 20 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $830,000,000 |
| Total Assets | $22,480,000,000 |
| Intangible Assets | $0 |
| Total Liabilities | $14,146,000,000 |
| Shares Outstanding (Diluted Average) | 164,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $5.13 |
| 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 | $4.82 |
| 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
Other ModernGraham posts about related companies
Disclaimer:
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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