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We expect property and casualty insurer XL Group plc (XL - Analyst Report) to beat expectations when it reports its first-quarter 2014 results on May 1.

Why a Likely Positive Surprise?

Our proven model shows that XL Group is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.82%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): XL Group has a Zacks Rank #3. Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of XL Group’s Zacks Rank #3 and +2.82% ESP makes us confident of a positive earnings beat.

What is Driving the Better-than-Expected Earnings?

A benign cat environment favoring better underwriting results, are expected to drive XL Group’s results in the first quarter.

The company’s acquisitions, intended to capitalize on the opportunities in hand, are also expected to enhance results.

Moreover, a lower share count, aided by the company’s buybacks efforts, should drive the bottom line.

The positive trend is backed by the trailing four-quarter average beat of 18.3%, much of which was contributed by the 38.8% positive surprise achieved in the first quarter of 2013. The last reported quarter benefitted from lower natural catastrophe losses due to a benign cat environment and higher net income from investment funds and investment manager operating affiliates.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this coming quarter:  

AXIS Capital Holdings Limited  (AXS - Analyst Report), earnings ESP of +3.28% and a Zacks Rank #2 (Buy).

RenaissanceRe Holdings Ltd. (RNR - Analyst Report), earnings ESP of +3.15% and a Zacks Rank #1 (Strong Buy).

The Allstate Corporation (ALL - Analyst Report), earnings ESP of +0.88% and a Zacks Rank #3 (Hold).

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