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Will Higher Premiums Aid CNA Financial's (CNA) Q1 Earnings?

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CNA Financial Corporation (CNA - Free Report) is slated to report first-quarter 2018 results on Apr 30 before the market opens. In the fourth-quarter 2017, the company delivered a positive earnings surprise of 28.05%.

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

CNA Financial intensified focus on core competencies in commercial property casualty insurance by shedding reinsurance, personal automobile insurance, life insurance, and group health products as well as reinsuring asbestos and pollution liabilities to lower balance sheet risk.

CNA Financial continues to well manage its long-term care book of business through product claim management thereby mitigating risk as well as effected rate increase.

CNA Financial is likely to report increased net premiums earned in the soon-to-be-reported quarter, fueled by an increase in new business as well as a solid retention. In fact, the Zacks Consensus Estimate for the metric is pegged at $1.8 billion, reflecting a 7.7% rise from the prior-year quarter.

Notably, the tax cut reducing the tax rate to 21% from 35%, is likely to aid the companies’ bottom line, boosting margins directly. The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at 90 cents per share, representing an increase of 3.4% on a year-over-year basis.
    
CNA Financial is anticipated to witness net investment income growth in the yet-be-reported quarter, mainly owing to rising interest rates as well as increase in fixed income securities. Also, improved limited partnership returns are estimated to have contributed to this probable increase in investment income.

The company is likely to witness a considerable improvement in net written premiums, mainly fueled by higher premiums across its segments, namely Commercial and International.

The property and casualty (P&C) insurer boasts an impressive track record of maintaining combined ratio at favorable levels in spite of a challenging operating environment. Improvement in combined ratio signifies superior underwriting discipline.

Being a P&C insurer, CNA Financial has possibly incurred higher catastrophe loss due to unpredictable weather-related events in the soon-to-be-reported quarter. This in turn is expected to affect the company’s underwriting profitability, hampering the insurer’s overall performance to an extent.

Also, the company probably has suffered higher expenses, primarily 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, hurting the company’s overall profitability in turn.

 

What Our Quantitative Model Predicts

Our proven model does not conclusively show that CNA Financial is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: CNA Financial has an Earnings ESP of -3.91%. This is because the Most Accurate estimate is pegged at 86 cents, lower than the Zacks Consensus Estimate of 90 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: CNA Financial carries a Zacks Rank #3, which increases the predictive power of ESP. However, a company needs to have a positive ESP to be confident about an earnings surprise. Thus, this combination leaves our surprise prediction inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

The Allstate Corporation (ALL - Free Report) is set to report first-quarter earnings on May 1. The stock has an Earnings ESP of +4.24% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.  

American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +4.46% and a Zacks Rank #2. The company is slated to release first-quarter earnings on May 2.  

Cigna Corporation (CI - Free Report) has an Earnings ESP of +0.62% and is a Zacks #3 Ranked player. The company is slated to release first-quarter earnings on May 3.

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