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Linked here is a detailed quantitative analysis of Cincinnati Financial Corp. (CINF). Below are some highlights from the above linked analysis:

Company Description: Cincinnati Financial Corp. is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

CINF is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 102.8% premium to its calculated fair value of $74.83. CINF did not earn any Stars in this section.

Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

CINF earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% The company has paid a cash dividend to shareholders every year since 1954 and has increased its dividend payments for 64 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in CINF would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If CINF grows its dividend at 3.8% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.

Peers: The company’s peer group includes: Axis Capital Holdings Ltd. (AXS) with a 2.0% yield, The Allstate Corporation (ALL) with a 1.9% yield, and The Travelers Companies, Inc. (TRV) with a 1.6% yield.

Conclusion: CINF did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks CINF as a 2-Star Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $84.93 before CINF's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 64 years of consecutive dividend increases. At that price the stock would yield 3.8%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 9.6%. This dividend growth rate higher than the 3.8% used in this analysis, thus providing no margin of safety. CINF has a risk rating of 1.5 which classifies it as a Low risk stock.

CINF was founded by independent insurance agents in order to better service their needs by providing them preferential treatment when picking an underwriter. The company primarily sells commercial property-casualty insurance with a smaller personal lines exposure marketed through a select group of independent insurance agencies. With its business concentration in its Midwest region, the company is exposed to weather-related calamities.

The company enjoys a low debt to total capital of 6% (down from 8%) and currently has a FCF Payout of 20% (down from 22%). The stock is trading at a premium to my calculated fair value of $74.83. This stock has been a solid performer, as such, I will continue to look for opportunities to add to my position, but will wait for a better price.

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