We expect The Allstate Corp. ALL to beat expectations when it reports first quarter 2015 results on May 6 after the closing bell. In the last reported quarter, the company delivered a positive earnings surprise of 2.99%.
In fact the auto and home insurer has delivered positive earnings surprises in the past four straight quarters, with an average earnings surprise of 11.37%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Allstate is likely to beat earnings as it has the perfect combination of the two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +5.04%. This is because the Most Accurate estimate stands at $1.46, whereas the Zacks Consensus Estimate is pegged lower at $1.39. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Allstate carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings.
The combination of Allstate’s Zacks Rank #3 and +5.04% ESP makes us confident of an earnings beat this season.
The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Factors Driving Better-Than-Expected Earnings
Improvements in global markets have been facilitating pricing discipline for Allstate, while benign catastrophe losses is expected to further help improve underwriting results, bottom line and combine ratio.
Additionally, with the launch of Fast Mobile e-Payment – a payment method available in the new Allstate ExpressPay portfolio – customers can now receive their claim payment directly in their bank account in a single day. This fast service reflects the company’s efforts in customer retention as well as an increase in customer base. These aforesaid initiatives are likely to boost the revenues of the company.
Moreover, with no debt maturities until 2018, Allstate’s debt management has been commendable, as total debt reduced 16.2% in 2014 from the 2013-end level. Debt reduction also improved the total debt-to-capital resources ratio consistently to 18.9% at 2014-end from 22.4% at 2013-end. These factors should be accretive to earnings, operating cash flow and return on equity, going forward.
Other Stocks That Warrant a Look
Here are some other financial companies which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
RenaissanceRe Holdings Ltd. RNR has an earnings ESP of +0.81% and a Zacks Rank #2(Buy).
American Capital, Ltd. ACAS has an earnings ESP of +10.00% and a Zacks Rank #2.
Manulife Financial Corp. MFC has an Earnings ESP of +2.94% and a Zacks Rank #2.
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