We expect multiline insurer, The Hartford Financial Services Group, Inc. (HIG) to beat expectations when it reports third-quarter 2014 earnings on Oct 27, 2014.
Why a Likely Positive Surprise?
Our proven model shows that The Hartford is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.19%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: The Hartford carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
The combination of The Hartford’s Zacks Rank #2 and +1.19% ESP makes us confident of an earnings beat in the coming week.
What is Driving the Better-Than-Expected Earnings?
The Hartford’s focus on core business enhancement should help it deliver improved earnings in the quarter. The company divested its Japanese annuity business, Hartford Life Insurance K.K. (HLIKK) to ORIX Life Insurance Corporation in Jul 2014. This divestiture marks a significant step as it permanently reduces the risk profile of the company, generates a capital benefit and also helps The Hartford to focus on its core operations, namely Property & Casualty (P&C), Group Benefits and Mutual Funds. In the same month, The Hartford invested in its P&C insurance policy management systems in order to improve efficiency and customer service. We expect these measures to help The Hartford strengthen its operations, thereby making way for more revenue generation.
Other Stocks to Consider
The Hartford is not the only stock looking up this earnings season. We also see a likely earnings beat coming from these three companies in the insurance sector:
Endurance Specialty Holdings Ltd. (ENH) has Earnings ESP of +3.95% and a Zacks Rank #1 (Strong Buy).
Kemper Corporation (KMPR) has Earnings ESP of +13.33% and a Zacks Rank #2.
Arch Capital Group Ltd. (ACGL) has Earnings ESP of +2.08% and a Zacks Rank #2.
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