We expect ACE Limited (ACE) to beat expectations when it reports first-quarter 2013 results on Apr 23.
Why a Likely Positive Surprise?
Our proven model shows that the property & casualty insurer is likely to beat earnings because it has the two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.04%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank 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.
The combination of ACE Limited’s Zacks Rank # 2 (Buy) and +1.04% ESP makes us expect a positive earnings beat on Apr 23.
What is Driving the Better Than Expected Earnings?
ACE Limited acquired Fianzas Monterrey from New York Life Insurance Company for a cash consideration of $293 million. This acquisition will help the company expand its surety business. Moreover, it will augment ACE Seguros, the existing commercial lines and personal accident insurance business in Mexico.
In addition, the U.S.-based retail operations of ACE Limited ACE USA, has introduced a Foreign Casualty Pollution Liability coverage endorsement. ACE came up with this coverage option to provide insurance and risk management solutions to the globally operating mid-sized and large-scale multinational companies located in the U.S.A.
ACE has also started underwriting energy risks through Syndicate 2488 at Lloyd’s of London.
The positive trend was seen in the trailing four-quarter’s average surprise of 9.74%, significantly aided by a 10% surprise in the last-reported quarter. Though its exposure to cat loss weighs on the results, prudent underwriting practices, international presence, diversified product offering, and a sturdy balance sheet managed to limit the adverse effect.
Other Stocks to Consider
ACE Limited is not the only firm looking up this earnings season. We also expect earnings beats coming from these 3 industry peers:
Aspen Insurance Holdings Ltd. (AHL), Earnings ESP of +13.54% and a Zacks Rank #1 (Strong Buy).
PartnerRe Ltd. (PRE), Earnings ESP of +6.78% and a Zacks Rank # 1 (Strong Buy).
W.R. Berkley Corporation (WRB), Earnings ESP of +2.70% and a Zacks Rank #1 (Strong Buy).
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