We expect property and casualty insurer The Travelers Companies, Inc. (TRV) to beat expectations when it reports third-quarter 2014 results on Oct 21.
Why a Likely Positive Surprise?
Our proven model shows that Travelers is likely to beat earnings when it reports on Oct 21 because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +7.37%. This is a meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: Travelers carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings.
The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
A benign catastrophe environment will favor improved underwriting results.
With successful implementation of pricing actions, Travelers effectively revamped its portfolio with better performing classes of business. Better pricing owing to a favorable rate environment aided the action. This should help it deliver improved returns.
Quantum 2.0 – the lower cost, lower-priced Auto insurance product – should continue to improve volumes at attractive returns. Its expanded product portfolio should drive higher premiums.
Continued share repurchase will also boost the bottom line.
Though Travelers missed the expectation in the last quarter, it outperformed the same in the preceding three quarters. The four-quarter average was 18.45%.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
Aspen Insurance Holdings Ltd. (AHL), Earnings ESP of +20.59% and a Zacks Rank #2.
The Chubb Corporation (CB), Earnings ESP of +4.66% and a Zacks Rank #2
The Allstate Corporation (ALL), Earnings ESP of +4.41% and a Zacks Rank #2.
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