We expect property and casualty insurer, Progressive Corp. (PGR) to beat expectations when it reports fourth-quarter 2014 earnings on Jan 28, 2015.
Why a Likely Positive Surprise?
Our proven model shows that Progressive 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 +6.98%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Progressive carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #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.
The combination of Progressive’s Zacks Rank #3 and +6.98% ESP makes us confident of an earnings beat in the coming week.
What is Driving the Better-Than-Expected Earnings?
Progressive’s strong multi-product offering, policies in force as well as policy life expectancy are expected to drive earnings. Also increased premiums written reflect the enhanced customer retention that is expected to contribute positively to the bottom line.
The strong insurance foothold of the company in the U.S. auto insurance market, improved underwriting performance, efficient expense management and a solid balance sheet are positives that should aid improved results in the quarter. In fact credit rating giant, Moody’s Corporation (MCO) reiterated the insurer financial strength (IFS) of Aa2 of Progressive’s operating subsidiaries based on these positives.
Moreover, management’s announcement of acquiring a controlling stake in ARX Holding Corp., the parent company of American Strategic Insurance (“ASI”) and its affiliates, and the consequent rating affirmation by A.M. Best is set to drive bullish sentiment on the stock thereby bolstering stock price.
The positive trend is seen in the trailing four-quarter average surprise of 9.29%, which was greatly aided by the 6.98% surprise in the last reported quarter. This was possible because of higher premiums during the third-quarter.
Other Stocks to Consider
Progressive is not the only stock looking up this earnings season. We see a likely earnings beat coming from these two companies in the same sector as well:
The Allstate Corporation (ALL) has Earnings ESP of +3.05% and a Zacks Rank #1 (Strong Buy).
Platinum Underwriters Holdings Ltd. (PTP) has Earnings ESP of +13.60% and a Zacks Rank #1.
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