Check These 2 Insurance Stocks Poised For Q1 Earnings Beat

The first-quarter earnings season has crossed its midpoint with more than 68% of the S&P 500 index members having reported quarterly results. Per the Earnings Outlook, the beat ratio is impressive with 78.4% of the participants surpassing bottom-line estimates and 75.8%, exceeding the top-line mark. Per the Earnings Outlook, earnings growth is estimated to be in double-digit in 13 of the 16 Zacks sectors including the Finance.

As of May 2, 76.5% of the companies from the Finance sector released results wherein earnings increased 27.1% on 9.1% revenue growth. The bottom line is estimated to grow 25.5% while revenues are projected to rise 6.6% in the first quarter of 2018.

Integral to the Finance sector, the insurance industry should deliver solid earnings in the quarter, riding on the strength of an improving rate environment, tax cuts, favorable operating environment and a progressing domestic growth scenario.

Insurers are hugely benefiting from a lower tax rate. Trump’s tax reform policy, an overhaul of tax code after 31 years, reduces the corporate tax burden to 21% from 35%. A tax cut along with share buybacks is providing an additional boost to the bottom line.

An improving rate environment also aided better investment results. Following six raises by the Federal Reserve post the recession, the interest rate now stands at 1.75%, gradually moving up from the near zero level. Although insurers have curtailed their exposure to interest-sensitive product lines to tolerate the low rate environment, they stand to gain from the increasing rates as investment yield improves.

The property and casualty insurers are set for improved profitability after suffering cat loss hiccups in 2017. Though the first quarter bumped into the northeast winter storms as well as witnessed a California mudslide, the insurers had a close shave from a harsh degree of catastrophe loss. Though cat loss is weighing on insurer’s profitability, yet the magnitude is much less than the previous year. Prudent underwriting standards and cost-control measures will likely support profitability for the players in the space. Significantly, 2017 was the costliest in terms of cat loss for the insurance industry.

A flourishing economy reflects a better employment scenario and the GDP translating into a more disposable income plus an optimistic consumer sentiment. This tailwind should help write more premiums for insurers, driven by more policy writings. Also, rate increases have added to the upside.

Ways to Pick the Perfect Insurance Stocks

With winds of positivity favoring the industry, investors can comfortably gamble with stocks, poised to deliver a positive earnings surprise in the impending quarterly reports.

Selecting the right stock for one’s portfolio from too many participants is certainly an uphill task for investors. But the simple way to condense the catalogue is by opting for stocks with a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which help surpassing the estimates.

Earnings ESP is our proprietary methodology for determining stocks with the best chances of delivering an earnings beat in the next announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Please check our Earnings ESP Filter that enables you to come across stocks with the potential to outshine earnings estimates this reporting cycle.

Our research shows that the stocks with the perfect combination of the two key ingredients have 70% chances of a positive earnings surprise.

For investors on the lookout to implement this strategy in their portfolios, we have underlined four insurance stocks, which might stand out from the crowd with an earnings beat in the upcoming releases.

National General Holdings Corp (NASDAQ:NGHC)

New York-based National General Holdings, a specialty personal lines insurance holding company, provides various insurance products and services in the United States.

With a Zacks Rank #2 and an Earnings ESP of +5.59%, National General Holdings looks well-poised for a positive surprise. The Zacks Consensus Estimate for the first quarter is pegged at 51 cents per share, up 34.2% year over year. With respect to the surprise trend, the company’s earnings surpassed expectations in two of the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

National General Holdings will announce first-quarter results after the closing bell on May 15.

Third Point Reinsurance Ltd. (NYSE:TPRE)

Pembroke, Bermuda-based Third Point Reinsurance provides specialty property and casualty reinsurance products to insurance and reinsurance companies worldwide.

The company has an Earnings ESP of +5.97% and a Zacks Rank #3. It is therefore likely to deliver a positive earnings surprise. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at 22 cents per share, down 122.5% year over year.

Third Point Reinsurance is scheduled to report first-quarter earnings numbers after the closing bell on May 9.

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National General Holdings Corp (NGHC): Free Stock Analysis Report

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