RLI Corp. (RLI) is set to report its third-quarter 2014 results on Oct 15. Last quarter, the company posted in-line earnings. Let’s see how things are shaping up for this announcement.
Factors Influencing This Past Quarter
RLI Corp. has been experiencing increasing expenses that have been weighing on margin expansion. It also has a high debt level, leading to a higher cost of debt. Also, a soft interest rate environment might limit investment income.
However, due to a benign cat environment, underwriting results will exhibit improvement. Premiums should benefit from an improving pricing scenario in the insurance market and a widened product lines.
Earnings Whispers
Our proven model does not conclusively show that RLI Corp. is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: RLI Corp. has -3.33% earnings ESP. This is because the Most Accurate estimate stands at 58 cents while the Zacks Consensus Estimate is pegged at 60 cents.
Zacks Rank: RLI Corp.’s Zacks Rank #1 (Strong Buy) increases the predictive power of ESP. However, when combined with a negative 3.33% earnings ESP, surprise prediction becomes difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Platinum Underwriters Holdings Ltd. (PTP), Earnings ESP of +32.71% and a Zacks Rank #1.
ACE Limited (ACE), Earnings ESP of +5.15% and a Zacks Rank #1.
Chubb Corporation. (CB), Earnings ESP of +5.24% and a Zacks Rank #2 (Buy).
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