StanCorp Financial Group Inc. (SFG) is set to report fourth quarter and full year 2012 results on Jan 28. In the prior quarter it posted a 52.5% positive surprise. Let’s see how things are shaping up for this announcement.
Factors this Past Quarter
Headwinds from the lack of employment and wage growth in group insurance business will likely pressurize premium growth at Group insurance. StanCorp also suffered a few rating and outlook downgrades. Further, StanCorp Financial expects full year benefit ratio to exceed its guided range of 80–82%, given its performance in the first half of the year and the persistently low interest rate environment. However, shares bought back under the 3 million shares buyback program is expected to aid the bottom line, though the company does not expect to buy back shares in the second half of 2012 given the higher group insurance benefit ratio experienced in the first half of 2012.
Our proven model does not conclusively show that StanCorp Financial is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Negative Zacks ESP: This is because the most accurate estimate stands at 80 cents while the Zacks Consensus Estimate is higher at 83 cents. This comes to a difference of -3.6%.
Zacks Rank #2 (Buy): StanCorp Financial’s Zacks Rank #2 (Buy) lowers the predictive power of ESP because the Zacks #2 Rank when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Genworth Financial Inc. (GNW), Earnings ESP of +16.0% and Zacks Rank #2 (Buy)
Manulife Financial Corporation (MFC), Earnings ESP of +3.1% and Zacks Rank #2 (Buy)
Citizens Inc. (CIA), Earnings ESP of +66.7% and Zacks Rank #3 (Hold)
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