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What's in Store for CNA Financial (CNA) in Q2 Earnings?

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What's in Store for CNA Financial (CNA) in Q2 Earnings?

Improved premiums and better investment results might boost CNA Financial (CNA) in Q2. However, rising expenses and a probable catastrophe loss might be spoilers.

CNA Financial Corporation CNA is slated to report second-quarter 2018 results on Jul 30 before the market opens. Last reported quarter, the company delivered a positive earnings surprise of 14.44%.

Let’s see, how things are shaping up for this announcement.

CNA Financial is likely to witness premium growth in the to-be-reported quarter, fueled by a probable increase in new business, renewal premium change, favorable currency fluctuation impact as well as a solid retention. Also, higher premiums across its segments — Commercial, International and Specialty — are expected to drive this upside. In fact, the Zacks Consensus Estimate for the metric is pegged at $1.8 billion, reflecting a 5.3% rise from the prior-year period.

Owing to the gradual improvement in interest rates and a possibility of higher limited partnership returns as well as increased fixed income securities, we expect CNA Financial to witness better investment results in the second quarter. The consensus estimate for the metric is pegged at $493 million, up 3.8% on a year-over-year basis.

Riding on the strength of improved premiums as well as investment results, CNA Financial has likely experienced top-line growth in the quarter to be reported. The Zacks Consensus Estimate for revenues is currently pegged at $2.6 billion, representing an increase of 11% from the year-ago quarter.

Also, the lower tax rate is likely to aid the company’s bottom line with the consensus mark for earnings in the to-be-reported quarter being pegged at 96 cents per share, translating into an increase of 9.1% on a year-over-year basis.

The property and casualty (P&C) insurer boasts an impressive track record of maintaining combined ratio at favorable levels in spite of a challenging operating environment. Even with the risk of incurring a certain level of catastrophe loss, the company is likely to have displayed an improvement in the combined ratio, denoting a superior underwriting discipline in turn.

CNA Financial continues to well manage its long-term care book of business through product claim management, thereby mitigating risk as well as aiding rate increase.

CNA Financial as a P&C insurer has been exposed to unpredictable weather-related events that might have resulted in catastrophe loss in the to-be-reported quarter. The second quarter witnessed rain storms in the United States as well as Canada. A probable incurrence of catastrophe loss might induce volatility in the company’s overall performance.

Further, the company has possibly witnessed higher expenses, primarily due to increasing net incurred claims and benefits plus amortization of deferred acquisition costs. This rise in expenses might restrict the operating margin expansion, hurting the company’s overall profitability in turn.

What Our Quantitative Model Predicts

Our proven model does not conclusively show that CNA Financial is likely to beat on earnings this earnings season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: CNA Financial has an Earnings ESP of -0.26%, which decreases the odds of an earnings surprise. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. 

CNA Financial Corporation Price and EPS Surprise

 

CNA Financial Corporation Price and EPS Surprise | CNA Financial Corporation Quote

Zacks Rank: CNA Financial carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against the Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.  

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

Prudential Financial, Inc. PRU is set to report second-quarter earnings on Aug 1 and has an Earnings ESP of +0.06%. The company is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group, Inc. AFG has an Earnings ESP of +1.68% and a Zacks Rank of 1. The company is set to announce second-quarter earnings on Aug 1.   

NMI Holdings Inc. NMIH has an Earnings ESP of +1.54% and is a Zacks #1 Ranked stock. The company is set to announce second-quarter earnings on Aug 1.

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Prudential Financial, Inc. (PRU) : Free Stock Analysis Report
 
CNA Financial Corporation (CNA) : Free Stock Analysis Report
 
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
 
NMI Holdings Inc (NMIH) : Free Stock Analysis Report
 
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