Back to top

Image: Bigstock

Will Higher Premiums Boost Travelers' (TRV) Q2 Earnings?

Read MoreHide Full Article

The Travelers Companies, Inc. (TRV - Free Report) is slated to report second-quarter 2018 results on Jul 19 before the market opens. Last reported quarter, the company delivered a negative earnings surprise of 8.21%.

Let’s see, how things are shaping up for this announcement.

The property and casualty (P&C) insurer is likely to report premium growth, driven by an improved pricing environment, considerably high retention, rise in new business as well as a diversified product portfolio. Additionally, the company has likely witnessed increase in premiums across its segments, contributing to a probable rise in the metric. The Zacks Consensus Estimate for premiums in second-quarter 2018 is pegged at $6.7 billion, up 4.8% from the year-ago quarter’s consensus mark.

Apart from the gradual improvement in interest rates, the company might have experienced better investment results in the to-be-reported quarter owing to higher private equity returns, growth in fixed income portfolio size and a lower tax rate. In fact, the company expects about $25-$30 million of higher after-tax net investment income on a quarterly basis for 2018 when compared with the previous year’s tally.

On the back of higher premiums as well as investment income, the company is likely to witness top-line growth in the quarter to be reported. Also, a consistently successful execution of marketplace strategies might lead to this probable improvement. The Zacks Consensus Estimate is currently pegged at $7.3 billion, reflecting a year-over-year improvement of 3.4%.

Further, lower tax incidence and continued share buybacks are likely to have lent a boost to the P&C insurer’s bottom line in the second quarter. The consensus estimate for the metric stands at $2.43, up 26.6% year over year.

With the company expecting to incur a lower level of catastrophe loss, underwriting results are anticipated to display substantial improvement in the soon-to-be-reported quarter. The Zacks Consensus Estimate for the combined ratio in the Insurance segment is pegged at 95%, having improved 200 basis points year over year. Moreover, Travelers projects underlying underwriting margins in each segment to improve in 2018.

The company’s Business Insurance segment is estimated to deliver a solid performance, primarily fueled by a lower tax rate along with higher earned premium volume.

Travelers’ commercial businesses are projected to perform well in the yet-to-be-reported quarter on the back of improved pricing, prudent strategy execution as well as market stability.

However, a higher debt-level, inducing a probable increase in interest expenses, can put pressure on the margin expansion.

What Our Quantitative Model States

Our proven model states that Travelers is likely to beat on earnings this to-be-reported quarter. This is because the stock has the perfect combination of a positive Earnings ESP as well as a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Travelers has an Earnings ESP of +1.55%. This is because the Most Accurate estimate is pegged at $2.47, higher than the Zacks Consensus Estimate of $2.44. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Travelers carries a Zacks Rank #3, which increases the predictive power of ESP.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some other stocks worth considering from the same space with the right combination of elements to also surpass estimates this time around are as follows:

Chubb Limited (CB - Free Report) is set to report second-quarter earnings on Jul 24 and has an Earnings ESP of +1.32%. The company is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

AXIS Capital Holdings Limited (AXS - Free Report) has an Earnings ESP of +10.72% and a Zacks Rank of 1. The company is set to announce second-quarter earnings on Jul 25.

Arch Capital Group Ltd. (ACGL - Free Report) has an Earnings ESP of +0.64% and a Zacks Rank of 2. The company is set to announce second-quarter earnings on Jul 31.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in