We came across a bullish thesis on CNA Financial Corp. (NYSE:CNA) on ValueInvestorsClub by natty813. In this article, we will summarize the bulls’ thesis on CNA. The company’s shares were trading at $50.23 when this thesis was published, vs. the closing price of $47.81 on Jan 03.
CNA offers commercial property and casualty insurance products in the United States and internationally. Its primary segments include Specialty, Commercial, International, Life & Group, and Corporate.
CNA has been subjected to underwriting issues in the past but there has been a turnaround after Dino Robusto joined the firm in 2016. The exposure to insurance pertaining to long-term care has been reduced, with a focus on commercial insurance. The commercial insurance segment grew by 16% in 2023 with the combined ratio reducing to 96% in 2023 from 105% in 2020. The International portfolio has also been a performing business, managing to turn profitable in 2021. The business grew by 6%, with the combined ratio reducing to 92.6% in 2023 from 102.4% in 2020.
CNA enjoys a favorable rating (A+ from S&P, A2 from Moody’s) due to its financial health and business performance. The debt to capital stands at 23% and it maintains a statutory surplus of $11 billion which is almost equal to the value of the net premium written in Q2-24. The investment portfolio has an average rating of A and is offering higher income as interest rates remain high. The ROE stands at a healthy 13.3%.
CNA offers a fixed regular dividend of $0.44 per quarter or $1.76 per year. At its current price, the dividend yield is 3.5%. It has also disbursed $2/year as variable dividends in 8 of the last 10 years. After accounting for the variable dividend, the total yield is approximately 7.5%.
91.7% of CNA is owned by Loews and this is one of the reasons why it is available at a discounted valuation. It is available at 1.39x tangible book value and 9.8x forward earnings. Combining the attractive dividend yield with the attractive valuation, CNA is certainly a Buy and Hold case, offering a potential for long-term double-digit returns.
While we acknowledge the potential of CNA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.