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CNA Financial (CNA): Buy, Sell, or Hold Post Q2 Earnings?

CNA Cover Image

CNA Financial has been treading water for the past six months, recording a small loss of 2.5% while holding steady at $47.08. The stock also fell short of the S&P 500’s 23.2% gain during that period.

Is there a buying opportunity in CNA Financial, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.

Why Do We Think CNA Financial Will Underperform?

We're swiping left on CNA Financial for now. Here are three reasons there are better opportunities than CNA and a stock we'd rather own.

1. Net Premiums Earned Point to Soft Demand

Insurers sell policies then use reinsurance (insurance for insurance companies) to protect themselves from large losses. Net premiums earned are therefore what's collected from selling policies less what’s paid to reinsurers as a risk mitigation tool.

CNA Financial’s net premiums earned has grown at a 7.4% annualized rate over the last five years, slightly worse than the broader insurance industry and in line with its total revenue.

CNA Financial Trailing 12-Month Net Premiums Earned

2. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

CNA Financial’s EPS grew at a weak 5.7% compounded annual growth rate over the last two years, lower than its 8.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

CNA Financial Trailing 12-Month EPS (Non-GAAP)

3. Substandard BVPS Growth Indicates Limited Asset Expansion

Book value per share (BVPS) serves as a key indicator of an insurer’s financial stability, reflecting a company’s ability to maintain adequate capital levels and meet its long-term obligations to policyholders.

To the detriment of investors, CNA Financial’s BVPS grew at a mediocre 10.6% annual clip over the last two years.

CNA Financial Quarterly Book Value per Share

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of CNA Financial, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 9.7× forward P/E (or $47.08 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.

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