The fourth-quarter 2017 earnings season is in full swing with 322 members of the elite S&P 500 index having reported financial numbers already. Per the latest Earnings Outlook, performances indicate a 15% increase in total earnings on 9.2% higher revenues. The beat ratio is impressive with 79.8% companies surpassing bottom-line expectations and 77%, outperforming on the top line.
On an encouraging note, the Finance sector (one of the 16 Zacks sectors) has delivered a strong performance till now. Per the Earnings Outlook, earnings grew 4.7% on 4.3% higher revenues.
Industry Sneak Peek
The insurance industry, an integral component of the Finance sector, is likely to perform slightly better in the fourth quarter compared with the third one. However, insurers’ underwriting profitability is still anticipated to bear the brunt of the California wildfires in the quarter to be reported. This downside is further likely to add to the woes with the catastrophe modeling firm AIR Worldwide, estimating cat loss at approximately $10.5 billion.
However, such a massive loss led insures to brave the price hike that remained flat due to a not-so-active catastrophe environment. This in turn, has even helped improving the premiums as well as driving the top line.
Also, prudent underwriting practices aided insurers to weather the cat event.
Net investment income, an important ingredient of an insurer’s top line, is expected to have substantially improved on the back of a rising interest rate environment. Although the interest rates have been increasing at a slower pace, the impact of rate hike is clearly visible in the insurers’ investment portfolios. Notably, the Fed kept its promise of three rate raises in 2017, the last being in December, having buoyed enough optimism among investors.
Diverse product offerings, a wide geographical footprint and a strong client retention are anticipated to have enhanced insurers’ performance in the yet-to-be-reported quarter.
Moreover, the tax reform policy — enacted in December 2017, slashing the tax rate to 21% from 35% — is estimated to benefit the insurance industry to a considerable degree. A lower tax rate would aid the companies’ bottom line, boosting margins directly. Additionally, the tax cut is projected to make U.S. insurers more competitive, globally.
Let’s find out how the following insurers are placed ahead of quarterly releases on Feb 12.
With the occurrence of the California wildfires in the fourth quarter, Loews Corporation (L - Free Report) is likely to have experienced higher catastrophe loss hurt the company’s underwriting profitability in the fourth quarter. Increase in expenses is anticipated to have weighed on the desired margin expansion, hurting the Multi line insurer’s overall performance in turn. Nonetheless, the company has possibly displayed better-than-expected results at Loews Hotels. Also, Diamond Offshore segment gained from higher contract drilling revenues and cost containment. (Read more: Will Catastrophe Loss Impact Loews' Earnings in Q4?)
The Zacks Consensus Estimate for fourth-quarter earnings of 72 cents per share reflects an 8.9% year-over-year decrease. Loews carries a Zacks Rank #2 (Buy), increasing the predictive power of ESP.
However, it’s Earnings ESP of -11.11% leaves surprise prediction inconclusive as the company needs a positive ESP to be confident about an earnings surprise. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Loews Corporation Price and EPS Surprise
Increase in new business as well as a solid retention at CNA Financial Corporation (CNA - Free Report) likely has driven a substantial improvement in net premiums earned. With the rising interest rate environment, the P&C insurer is anticipated to have reported higher net investment income. With the rising interest rate environment, the P&C insurer is anticipated to have reported higher net investment income. (Read more: Will Higher Premiums Aid CNA Financial's Q4 Earnings?)
The Zacks Consensus Estimate for earnings of 82 cents per share for the soon-to-be-reported quarter remains flat year over year. CNA Financial sports a Zacks Rank #1, which increases the predictive power of ESP. Further, combined with an Earnings ESP of +2.75%, makes us confident about an earnings surprise.
CNA Financial Corporation Price and EPS Surprise
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Arch Capital Group Ltd. (ACGL - Free Report) carries a Zacks Rank #3 (Hold). However, the combination of Arch Capital’s favorable Zacks Rank and an Earnings ESP of 0.00% makes surprise prediction difficult. The Zacks Consensus Estimate for fourth-quarter earnings of $1.13 per share remains flat year over year.
Arch Capital Group Ltd. Price and EPS Surprise
Brighthouse Financial, Inc. (BHF - Free Report) carries a Zacks Rank of 2. The Zacks Consensus Estimate for earnings is pegged at $2.11 per share for the to-be-reported period. The combination of Brighthouse Financial’s bullish Zacks Rank and an Earnings ESP of +2.27% makes us confident about an earnings surprise this time around.
Brighthouse Financial, Inc. Price and EPS Surprise
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>