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CNA Financial (CNA) Q2 Earnings: Is a Beat in the Cards?

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We expect Property and Casualty (P&C) insurer CNA Financial Corporation (CNA - Free Report) to surpass expectations when it reports second-quarter 2017 results on Jul 31, before the market opens.

Why a Likely Positive Surprise?

Our proven model shows that CNA Financial has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +4.00%. This is because the Most Accurate estimate of 78 cents is higher than the Zacks Consensus Estimate of 75 cents. The positive ESP is a leading indicator of a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CNA Financial holds a Zacks Rank #3 (Hold), which increases the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP, have a significantly higher chance of beating on earnings.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

What is Driving the Better-Than-Expected Earnings?

CNA Financial is likely to report bottom-line growth in the second quarter on the back of better performance across its Specialty, International as well as Life & Group Non-Core segments.

Additionally, with the rising interest rate environment, this P&C insurer has likely experienced higher net investment income in the second quarter, mainly driven by improved limited partnership returns.

The company has also likely displayed favorable loss reserve development in each of the P&C segments. Besides, the company might have experienced modest improvement in rates, due to strong retention across the P&C segments.  

This apart, the P&C insurer’s disciplined approach toward the market is expected to have resulted in an improvement in new business.

However, CNA Financial is likely to report higher expenses in the soon-to-be reported quarter, mainly due to increasing net incurred claims and benefits, plus amortization of deferred acquisition costs. This rise in expenses is likely to restrict the operating margin expansion, which might hurt the company’s overall profitability.

With respect to the earnings trend, this company delivered positive surprises in three of the last four quarters with an average beat of 12.45%.

Stocks to Consider

Some better-ranked companies worth considering from the insurance industry with the right combination of elements to come up with an earnings beat this quarter are as follows:

The Navigators Group, Inc. (NAVG - Free Report) , which is set to report second-quarter earnings on Aug 3, has an Earnings ESP of +5.17% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

National General Holdings Corp (NGHC - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank #2. The company is set to report second-quarter earnings on Aug 7.

Sun Life Financial Inc. (SLF - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank #1. The company is slated to report second-quarter earnings on Aug 1.

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