On Monday, BMO Capital Markets raised its rating on shares of Cincinnati Financial (NASDAQ:CINF) from Market Perform to Outperform. The firm also set a price target for the stock at $135.00. This adjustment comes as BMO Capital anticipates an improvement in the company's performance metrics over the next few years.
Cincinnati Financial is expected to incorporate additional excess IBNR reserves, which are reserves for incurred but not reported claims, into its existing reserves. This process, often referred to as adding to the "reserves cookie jar," is seen as a positive move that can contribute to the company's financial health. The analyst noted that actual cash-paid loss ratios have shown improvement, which is a favorable indicator for the insurer's loss margin.
The firm's analysis suggests that as long as social inflation, which refers to the rising costs of insurance claims due to societal trends and litigation, does not escalate further in 2024, Cincinnati Financial's loss ratio margin, a key performance indicator (KPI), should remain attainable. The current KPI bar is considered low, indicating that it should be easier for the company to exceed it.
BMO Capital also projects that Cincinnati Financial's earnings per share (EPS) for 2024 could surpass consensus estimates by roughly 5%. This estimate is based on the assumption that the company's strategic reserve additions and improving loss ratios will continue to bolster its financial outcomes.
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