Donegal Group (NASDAQ: DGICA) and Cincinnati Financial (NASDAQ:CINF) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their analyst recommendations, risk, profitability, earnings, institutional ownership, valuation and dividends.

Risk and Volatility

Donegal Group has a beta of 0.3, meaning that its share price is 70% less volatile than the S&P 500. Comparatively, Cincinnati Financial has a beta of 0.93, meaning that its share price is 7% less volatile than the S&P 500.

Insider & Institutional Ownership

29.3% of Donegal Group shares are owned by institutional investors. Comparatively, 64.5% of Cincinnati Financial shares are owned by institutional investors. 11.9% of Donegal Group shares are owned by company insiders. Comparatively, 9.3% of Cincinnati Financial shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares Donegal Group and Cincinnati Financial’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Donegal Group $688.42 million 0.71 $30.80 million $0.57 31.05
Cincinnati Financial $5.45 billion 2.26 $591.00 million $3.02 24.89

Cincinnati Financial has higher revenue and earnings than Donegal Group. Cincinnati Financial is trading at a lower price-to-earnings ratio than Donegal Group, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Donegal Group and Cincinnati Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Donegal Group 2.13% 2.81% 0.75%
Cincinnati Financial 8.93% 5.85% 2.03%

Dividends

Donegal Group pays an annual dividend of $0.56 per share and has a dividend yield of 3.2%. Cincinnati Financial pays an annual dividend of $2.00 per share and has a dividend yield of 2.7%. Donegal Group pays out 98.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Cincinnati Financial pays out 66.2% of its earnings in the form of a dividend. Donegal Group has raised its dividend for 57 consecutive years. Donegal Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Donegal Group and Cincinnati Financial, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Donegal Group 0 0 2 0 3.00
Cincinnati Financial 0 3 1 0 2.25

Donegal Group currently has a consensus price target of $19.50, suggesting a potential upside of 10.17%. Cincinnati Financial has a consensus price target of $77.33, suggesting a potential upside of 2.89%. Given Donegal Group’s stronger consensus rating and higher probable upside, research analysts plainly believe Donegal Group is more favorable than Cincinnati Financial.

Summary

Cincinnati Financial beats Donegal Group on 10 of the 17 factors compared between the two stocks.

About Donegal Group

Donegal Group Inc. (DGI) is an insurance holding company whose insurance subsidiaries offer personal and commercial lines of property and casualty insurance. The Company offered its insurance business to various businesses and individuals in 21 Mid-Atlantic, Midwestern, New England and Southern states, as of December 31, 2016. It has four segments: investment function, personal lines of insurance, commercial lines of insurance and investment in Donegal Financial Services Corporation (DFSC). Its insurance operations include two segments: personal lines of insurance and commercial lines of insurance. The personal lines of insurance, which its insurance subsidiaries write consists of private passenger automobile and homeowners insurance. The commercial lines of insurance, which its insurance subsidiaries write consists of commercial automobile, commercial multi-peril and workers’ compensation insurance. It holds interests in DFSC, which is a unitary savings and loan holding company.

About Cincinnati Financial

Cincinnati Financial Corporation is an insurance holding company. It operates through five segments: Commercial lines insurance, Personal lines insurance, Excess and surplus lines insurance, and Life insurance and Investments. Its Commercial Lines Insurance Segment provides five commercial business lines: commercial casualty, commercial property, commercial auto, workers’ compensation and other commercial lines. Its personal lines property insurance segment writes personal lines coverage in accounts that include both auto and homeowner coverages, as well as coverages that are part of its other personal business line. The excess and surplus lines Insurance segment covers business risks with characteristics, such as the nature of the business or its claim history that are difficult to profitably insure in the standard commercial lines market. The life insurance business lines include term life insurance, universal life insurance, worksite products and whole life insurance.

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