With the onset of the Q3 earnings season we have seen 6.8% of the S&P 500 Index reporting financial results so far. Earnings of these 34 index members (accounting for 8.9% of the index’s total market capitalization) have inched up 1.3% on 2.9% higher revenues as per the latest Zacks Earnings Trends report. While 79.4% of these companies delivered positive earnings surprises, 64.7% managed to beat revenue estimates.
The Finance sector has started the Q3 earnings season on a strong note. In fact, the financial performance of the companies from this sector that have already reported their results (5.6%) reflect 1.3% earnings growth and a 2.9% increase in revenues. Moreover, the beat ratios (100.0% for both earnings and revenues) compare favorably with the S&P 500.
The Finance sector (one of the 16 Zacks sectors) is highly diversified and includes several industries like insurance, banks, financial transaction services, to name a few. Of these, the insurance industry is poised to display an impressive performance owing to the absence of any significant catastrophe losses in Q3. Hence, we expect insurers to witness better underwriting results alongside considerable improvement in underwriting income and combined ratio.
Despite headwinds like the growing uncertainty regarding the Fed rate hike and persistently low interest rates, the insurance companies are cushioned by their broader invested asset base. Another positive is their well diversified product and service portfolios, which should drive premiums higher. Favorable pricing is another tailwind.
With as many as 244 companies due to report their quarterly results this week, including 80 S&P 500 members, we expect a clearer insight into the performance of the sector. Meanwhile, let’s take a look at how these four insurers might fare when they report their quarterly numbers on Oct 20.
The Travelers Companies, Inc. (TRV - Analyst Report) is an industry-leading property and casualty (P&C) insurer that provides a wide range of commercial property-liability insurance and asset management services to businesses, government organizations, and individuals in the United States and internationally. The company delivered a 3.77% positive surprise last quarter. According to our quantitative model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) – to increase its odds of an earnings surprise. Travelers has an Earnings ESP of +5.17% as the Most Accurate estimate of $2.44 is pegged higher than the Zacks Consensus Estimate of $2.32. Moreover, the company carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Travelers has likely witnessed a rise in new business written, primarily driven by Optima, the company’s new strategic Personal Lines Auto product in Canada. Also, the company is likely to report robust results at its Personal Insurance business. Continued share buyback should have aided the bottom line. However, the company might have experienced a decline in investment income. Read (Travelers Likely to Top Q3 Earnings: Stock to Gain?)
With respect to the earnings trend, the company delivered positive surprises in three of the last four quarters, with an average beat of 8.51%.
Stewart Information Services Corporation (STC - Snapshot Report) provides title insurance and real estate transaction related services worldwide. The company delivered a negative surprise of 43.02% in the last quarter. For Q3, Stewart Information Services has an Earnings ESP of 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate stand at 97 cents. It currently holds a Zacks Rank #2.
With respect to the surprise trend, Stewart Information Services lagged expectations in three of the last four quarters, with an average miss of 7.02%.
Brown & Brown Inc. (BRO - Analyst Report) and its subsidiaries provide a wide range of insurance and reinsurance products and services. The company also offers risk management, third-party administration, managed health care, and Medicare set-aside services and programs. Brown & Brown delivered a positive surprise of 11.36% in the last quarter. For Q3, it has an Earnings ESP of 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate stand at 49 cents. It currently carries a Zacks Rank #3. Read (Brown & Brown Q3 Earnings: Is a Surprise in Store?)
With respect to the surprise trend, the company delivered positive surprises in three of the last four quarters, with an average beat of 7.50%.
First American Financial Corporation (FAF - Snapshot Report) offers financial services through its Title Insurance and Services segment and its Specialty Insurance segment. The company delivered a positive surprise of 13.58% in the last quarter. For Q3, First American Financial has an Earnings ESP of 0.00% as both the Most Accurate estimate and Zacks Consensus Estimate stand at 86 cents. It currently carries a Zacks Rank #3.
With respect to the surprise trend, First American Financial delivered positive surprises in three of the last four quarters, with an average beat of 10.73%.
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