We expect property and casualty insurer, Cincinnati Financial Corp. (CINF) to beat expectations when it reports third-quarter 2014 earnings on Oct 28, 2014.
Why a Likely Positive Surprise?
Our proven model shows that Cincinnati Financial 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 +23.33%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Cincinnati Financial carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions momentum
The combination of Cincinnati Financial’s Zacks Rank #3 and +23.33% ESP makes us confident of an earnings beat on Oct 28.
What is Driving the Better-Than-Expected Earnings?
Increase in insurance rates and Cincinnati Financial’s growth initiatives position the company to witness top-line growth. The company has implemented the use of predictive analytics to improve its pricing precision, while also leveraging local relationships with agents. Cincinnati Financial’s Excess and Surplus line is also performing well.
Despite a soft market environment, the segment has been able to achieve rate increases for the last 40 consecutive months, at a low double-digit range. We expect the trend to continue, given the improving excess and surplus lines market. The company’s geographic diversification, strong cash flow and low debt levels are other positives that should aid an improved performance in the quarter.
The positive trend is seen in the trailing four-quarter average surprise of 6.65%, which was greatly aided by the 9.52% surprise in the last reported quarter. This was possible because of higher premiums.
Other Stocks to Consider
Cincinnati Financial 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 Corp. (KMPR) has Earnings ESP of +13.33% and a Zacks Rank #2 (Buy).
Arch Capital Group Ltd. (ACGL) has Earnings ESP of +2.08% and a Zacks Rank #2.
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