On Tuesday, BofA Securities adjusted its stance on CNA Financial Corporation (NYSE:CNA), downgrading the stock from Neutral to Underperform, despite increasing the price target to $43.00 from the previous $39.00. The change in rating comes after a period of notable share price growth for CNA Financial, as the company's stock advanced 14% since a market shift towards risk-on assets last November.
CNA Financial, along with its peers in the property and casualty (P&C) insurance sector, posted robust fourth-quarter results for 2023, which further buoyed the company's share price. BofA Securities acknowledged that investment yields have risen more rapidly than anticipated, prompting an upward revision of near-term earnings per share (EPS) forecasts for 2024 through the first half of 2025.
"We have concerns that underwriting margins are at peak for CNA as well as commercial insurance carriers more broadly," said the analysts.
The current yields on CNA's taxable and tax-exempt P&C float, at 4.75% and 4.00% respectively, were compared to the 3- to 5-year U.S. Treasury yields, which stand at 4.10-4.25%. This comparison underpins the analyst's view that CNA's stock might offer lower returns compared to its peers within the coverage universe.
The report also indicated a shift in the Income Rating for CNA Financial, moving it to an 8, which suggests expectations for the same or lower income, from a previously more optimistic 7, indicating the same or higher income.
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