• Wondering if CNA Financial at around US$41.91 is offering good value right now, or if the risks outweigh the potential upside.
• The stock is down 2.1% over the past week, 5.2% over the past month, 10.6% year to date, and 3.4% over the past year, even though the 3 year and 5 year returns sit at 33.7% and 29.6% respectively.
• These moves come as investors reassess the insurance sector and company specific factors, with sentiment shifting between caution and interest in more stable financials. For CNA Financial, that mixed backdrop makes the current share price especially important to assess.
• CNA Financial currently holds a valuation score of 5/6. The rest of this article will compare what different valuation methods are saying about the stock, and then finish with a way to look at valuation that goes beyond the usual ratios.

Approach 1: CNA Financial Excess Returns Analysis

The Excess Returns model looks at how much profit a company generates above the return that equity investors typically require, then capitalizes that surplus to estimate what the stock could be worth today.

For CNA Financial, the key inputs are grounded in its historical profitability. The model uses a Book Value of US$40.13 per share and a Stable EPS of US$3.98 per share, based on the median return on equity over the past 5 years. The Average Return on Equity is 10.48%, while the Cost of Equity is US$2.70 per share, which implies an Excess Return of US$1.28 per share. The Stable Book Value used in the model is US$37.98 per share, reflecting the median book value over the same period.

Feeding these figures into the Excess Returns framework produces an estimated intrinsic value of about US$73.85 per share. Compared with the current share price around US$41.91, this points to the stock trading at a 43.3% discount to that estimate.

Result: UNDERVALUED

Our Excess Returns analysis suggests CNA Financial is undervalued by 43.3%. Track this in your watchlist or portfolio, or discover 46 more high quality undervalued stocks.

Approach 2: CNA Financial Price vs Earnings

For a consistently profitable company, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. It ties the share price directly to the bottom line, which is usually what drives long term returns.

What counts as a “normal” P/E depends on how the market views a stock’s growth potential and risk. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk usually points to a lower multiple.

CNA Financial currently trades on a P/E of 9.33x. That sits below the Insurance industry average of about 10.57x and also below the broader peer group average of 14.90x. Simply Wall St’s Fair Ratio for CNA Financial is 10.85x. This Fair Ratio is a proprietary estimate of what the P/E might be given the company’s earnings profile, industry, profit margins, market cap and risk factors.

Compared with simple peer or industry comparisons, the Fair Ratio aims to be more tailored to CNA Financial’s specific characteristics. With the current P/E of 9.33x sitting below the Fair Ratio of 10.85x, the stock screens as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your CNA Financial Narrative

Earlier the article mentioned that there is an even better way to understand valuation. This is where Narratives come in, a simple way for you to put a clear story behind the numbers, such as your view of fair value and your assumptions for future revenue, earnings and margins.

A Narrative links what you believe about a company, like CNA Financial’s competitive position or risk profile, to a financial forecast and then to an estimated fair value that you can compare with the current share price.

On Simply Wall St’s Community page, used by millions of investors, Narratives are easy to create and update. They help you decide whether CNA Financial looks more attractive or less attractive by setting your Fair Value against the live market Price.

Narratives also respond to new information. When fresh news or earnings are released, the underlying forecasts and fair values can be refreshed and you can see how different investors, from the most optimistic to the most cautious, are valuing CNA Financial at any point in time.

Do you think there's more to the story for CNA Financial? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.