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Will RLI Corp. (RLI) Disappoint This Earnings Season?

Zacks Equity Research

RLI Corp. (RLI) is set to report third-quarter 2013 results on Oct 16. Last quarter, it posted a 7.6% positive surprise. Let’s see how things are shaping prior to this announcement.

Growth Factors This Past Quarter

RLI Corp. is one of the industry’s most profitable property and casualty writers, generating underwriting profits in 33 of the last 37 years, especially in the last 17 consecutive years.

The absence of any significant catastrophe during the quarter is likely to aid the company’s underwriting results.

However, continued low interest rate environment is expected to weigh on the company’s net investment income. RLI Corp. also experiences a fluctuating cash position. This keeps us cautious about its ability to meet debt and liquidity needs as well as working capital requirements.

Earnings Whispers?

Our proven model does not conclusively show that RLI Corp. is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case with RLI Corp. as you will see below.

Zacks ESP 0.0%:   That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 95 cents. The difference is 0.0%.

Zacks Rank: RLI Corp.’s Zacks Rank #2 (Buy) increases the predictive power of ESP. This when combined with a 0.0% ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Aspen Insurance Holdings Ltd. (AHL), earnings ESP of +159.6% and a Zacks Rank #1 (Strong Buy).

Arch Capital Group Ltd. (ACGL), earnings ESP of +24.3% and a Zacks Rank #1 (Strong Buy).

Allied World Assurance Company Holdings, AG (AWH), earnings ESP of +12.1% and a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on RLI
Read the Full Research Report on AWH
Read the Full Research Report on AHL

Zacks Investment Research