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We expect The Travelers Companies, Inc. (TRV - Analyst Report) to beat expectations when it reports fourth-quarter and full year 2012 results on Jan 22.

Why a Likely Positive Surprise?

Our proven model shows that the property & casualty insurer is likely to beat earnings because it has the two key ingredients.

Positive Zacks ESP: Earnings ESP (Read: Zacks Earnings ESP: A Better Method) is at a whopping 550%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks #2 Rank (Buy): Note that stocks with Zacks Rank of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

The combination of Travelers’ Zacks Rank # 2 (Buy) and 550% ESP makes us expect a positive earnings beat on Jan 22nd.

What is Driving the Better Than Expected Earnings?

Travelers increased its stake in J. Malucelli Participações em Seguros e Resseguros S.A., a market leader in the surety insurance business in Brazil, to 49.5% from 43.4%.

It also made some useful investments to augment its technology platform. Further, the company announced its intentions to resume share repurchase activity. Additionally, it scores strongly with the rating agencies.

Together, all these factors are expected to lead to a positive earnings surprise in the upcoming quarter.

The positive trend is seen in the trailing four-quarter average surprise of 11.9%, which was greatly aided by the nearly 13% surprise in the last-reported quarter. Lower catastrophe losses and sturdy underwriting results fueled the outperformance.

However, after tax and after estimated recoveries from reinsurance loss of $650 million, stemming from Hurricane Sandy, might weigh on the results.

Other Stocks to Consider

Travelers is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 industry peers:

AmTrust Financial Services, Inc. (AFSI - Snapshot Report), Earnings ESP of +13.1% and Zacks Rank #2 (Buy).

Berkshire Hathaway Inc. (BRK.A - Snapshot Report), Earnings ESP of +1.49% and Zacks Rank # 2 (Buy).

W.R. Berkley Corporation (WRB - Analyst Report), Earnings ESP of +6.25% and Zacks Rank #3 (Hold).

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