The second-quarter earnings season is in full swing now with 265 members of the elite S&P 500 index having already reported their financial numbers. Per the latest Earnings Preview, the performance of these index participants indicates a 23.6% increase in total earnings on 10.1% higher revenues. The beat ratio is impressive with 80.8% companies surpassing bottom-line expectations and 72.1% outperforming on the top-line front. This uptrend bears encouraging picture of the ongoing reporting cycle.
The Finance sector (one of the 16 Zacks sectors) is expected to deliver earnings growth in mid- 20s on nearly mid-single digit stronger revenues.
Integral to the Finance sector, the insurance industry is likely to witness better results this time around on the back of an improving rate environment, tax cuts and an overall favorable operating environment.
The insurance industry faced a catastrophe loss in the second quarter. Successive rain storms in the United States as well as Canada did cause damage but the loss was lower than the year-ago quarter. A Morgan Stanley analyst noted that the second-quarter cat loss estimate is equivalent to about half of what insurers usually suffer due to natural calamities in any given second quarter, per a carriermanagement.com report.
Improved pricing, prudent underwriting practices, portfolio repositioning as well as reliance on reinsurance covers have possibly helped insurers survive the deficits.
A steady increase in interest rates is likely to have boosted net investment income, an important component of an insurer’s top line. Reflecting economic stability, the Federal Reserve raised the key interest rate in June, marking the second hike in 2018.
Also, an improving employment scenario and strengthening labor market have boosted demand for insurance covers. This in turn should have driven premium revenues for the insurers.
A diversified portfolio, a wide geographic footprint, strategic consolidations and lower taxes are anticipated to have enhanced insurers’ performance in the quarter to be reported.
Let’s find out how the following insurers are placed ahead of their quarterly releases on Aug 1.
At The Allstate Corporation (ALL - Free Report) , increase in the strength of customers served led to an increase in Allstate brand policies in force, driven by auto and other personal lines growth. Esurance policies increased on growth in the homeowners’ line. Allstate Benefits and Square Trade also witnessed policies in force. Growth in customer base should lead to premium growth. Decline in premium and policies in force in states with inadequate returns have likely shrunk the top line at Encompass. The company is expected to incur a loss of $489 million in the second quarter as a result of weather-related events, which occurred in April and May. (Read more: Allstate Q2 Earnings to Suffer From Catastrophe Loss)
The Zacks Consensus Estimate of $1.45 per share for second-quarter earnings reflects a 5.1% year-over-year increase. Allstate carries a Zacks Rank #3 (Hold), which raises the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult.
The company beat on earnings in the last four quarters, the average positive surprise being 47.42%. The same is depicted in the chart below:
The Allstate Corporation Price and EPS Surprise
At Lincoln National Corp. (LNC - Free Report) , an increase in total Life Insurance sales during the second quarter on the back of higher sales of Variable Universal Life and term products is expected in combination with consistently strong demand for MoneyGuard. Product diversification and depth and breadth of the company’s distribution might also have favored the company’s Life business. (Read more: What's in Store for Lincoln National in Q2 Earnings?)
The Zacks Consensus Estimate of $2.10 for the yet-to-be-reported quarter earnings reflects a 13.5% year-over-year improvement. The company has an Earnings ESP of 0.00%, which makes surprise prediction difficult. Meanwhile, a Zacks Rank of 3 increases the predictive power of ESP. However, this combination does not increase the odds of an earnings surprise.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The company beat on earnings in each of the trailing four quarters, the average being a positive 5.22%. The same is depicted in the chart below:
Lincoln National Corporation Price and EPS Surprise
At MetLife Inc. (MET - Free Report) , revenue growth is expected owing to sales growth in Asia and EMEA, growth in operating premiums plus fees and other revenues in its Group Benefits segment. Property & Casualty or P&C might have experienced a strong quarter, driven by favorable auto underwriting results. Auto results are likely to benefit from targeted rate increases and management action to create value.
The Zacks Consensus Estimate of $1.17 for the yet-to-be-reported quarter earnings represents a 10% year-over-year decrease. The company has an Earnings ESP of -0.69%, which decreases the odds of an earnings surprise. Meanwhile, a Zacks #3 Ranked stock increases the predictive power of ESP, leaving surprise prediction inconclusive. (Read more: What's in the Cards for MetLife Stock in Q2 Earnings?)
The company beat on earnings in the trailing four quarters at a positive 9.96% average. The same is depicted in the chart below:
MetLife, Inc. Price and EPS Surprise
Prudential Financial Inc. (PRU - Free Report) is expected to have witnessed bottom-line growth in the soon-to-be-reported quarter, riding on recurring premium sales, expanded product offerings and broader distribution capabilities. Also, share buyback probably have boosted this bottom-line upside.
Moreover, possibility of solid core growth in asset-based businesses including Investment Management, Retirement as well as Individual Annuities along with better-than-expected margins in the Group Insurance segment and consistent underlying results in international operations have likely contributed to this possible improvement. Prudential Financial is projected to gain from a gradually improving interest rate environment and a favorable investment income from higher invested asset balances.
The Zacks Consensus Estimate for second-quarter earnings is pegged at $3.08, up 8.9% year over year. The company’s Zacks Rank # 2 (Buy) combined with an Earnings ESP of +0.06% make us reasonably confident about an earnings surprise. (Read more: Prudential Financial Q2 Earnings: Is a Beat in Store?)
The company beat on earnings in three of the preceding four quarters, the average negative surprise being 1.26%. The same is depicted in the chart below:
Prudential Financial, Inc. Price and EPS Surprise
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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