Many investors had high hopes for the insurance industry heading into 2016, as the prospect of higher interest rates was welcomed news for the space. But
as the outlook crumbled for the economy and interest rates tanked, optimism over insurance companies like CNA Financial Corp (CNA) fell by the wayside too.
Even with the recent broad market bounce, shares of CNA have fallen more than ten percent on the year, and are down more than 25% in the past one year time frame. And while many stocks have faced weakness in the past few months, it is also worth noting that CNA has easily underperformed the broader insurance industry as represented by ETFs like (KIE) and (IAK).
Both of those ETFs have easily crushed CNA’s performance both for 2016 and the trailing one year, showing that CNA is trailing the industry at large too.
What Happened at CNA?
Well, CNA’s recent troubles can largely be blamed on recent earnings report weakness, as well as collapsing earnings estimates for future quarters.
Additionally, the idea of the Fed raising rates several times this year seems quite unlikely to many investors out there, so that will also reduce the
earnings prospects for CNA in the months ahead too.
But first let’s zero-in on the recent quarters, as CNA has actually missed estimates in two of the last four quarters, including two misses of at least
35%, and a four quarter average that is right at that level too. Their most recent report was especially disastrous, as the company was expecting EPS of 90
cents a share and delivered a 19 cent loss per share, a massive miss for the trailing quarter.
Fresh Estimates for CNA
And thanks to this big miss and a poor outlook, analysts have been racing to ratchet down their expectations for CNA’s earnings potential in the coming
quarters. In fact, we haven’t seen any estimates move higher for either the current quarter or current year period in the past two months, compared to
several lower for both time periods.
The magnitude of the earnings estimate cuts have also been strong, as more than twenty cents have been chopped off the current quarter estimate, while even
more has fallen off of the full year figure. Clearly, CNA is in quite the downtrend and that is further confirmed by the chart below which shows the stock
price, as well as consensus earnings estimates:
No wonder CNA has earned itself a Zacks Rank #5 (Strong Sell) and that we are looking for more underperformance from this laggard in the near future.
Try These Other Insurance Sector Picks
Fortunately for investors seeking options in the insurance market, there are plenty of better choices out there. Actually, CNA is one of just five companies—out of 55—in the insurance property/casualty market—that has a strong sell rating so it is kind of tough to find a company that isn’t ahead of CNA these days.
A couple more promising picks in the market include UTD Insurance (UIHC) or Select Insurance Group (SIGI), two companies which have Zacks Rank #1 (Strong Buy) ratings, as well as EPS Surprises for the past quarter. Either of these look to be better choices, and especially when compared to CNA, in this uncertain market environment that still could be beneficial for at least a few insurance companies out there.
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