Is a Beat in the Cards for XL Group (XL) in Q2 Earnings?

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XL Group Ltd XL is slated to report second-quarter 2018 results on Jul 31 after the market closes . Last reported quarter, the company came up with a negative earnings surprise of 13.68%.

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

Factors to be Considered for Second Quarter

The P&C insurer is likely to witness premium growth in the to-be-reported quarter, fueled by a probable increase in premiums at both its Insurance and Reinsurance segments. A strong international exposure, expanded capabilities and diversified product offerings likely have fueled premiums. The consensus mark is pegged at $2.7 billion, translating into a 7.9% improvement from the year-ago period.

We expect XL Group to report higher net investment income in the quarter to be reported, driven by improved interest rates as well as possible higher reinvestment rates plus portfolio management activities.

Backed by better-than-expected investment results and premium growth, we anticipate XL Group to report top-line growth in the second quarter. In fact, the Zacks Consensus Estimate for the metric is pegged at $2.9 billion, representing a 4.8% rise year over year.

However, the company is likely to have reported higher operating expenses in the to-be-reported quarter, mainly due to higher net loss and loss expenses incurred as well as claims and policy benefits. This in turn, might restrict the operating margin expansion as well, hurting the company's overall performance in turn.

As a property and casualty (P&C) insurer, XL Group is highly exposed to unpredictable weather-related events resulting in a substantial catastrophe loss. The second quarter witnessed rain storms in the United States and Canada. Therefore, we anticipate that the company has possibly incurred a certain level of cat loss in the to-be-reported quarter, which in turn, can negatively impact its underwriting results and also affect the combined ratio.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at 90 cents per share, reflecting a decline of 6.3% from the prior-year period.

What Our Quantitative Model States

Our proven model shows that XL Group is likely to beat on earnings this to-be-reported quarter. This is because the stock has the perfect combination of a positive Earnings ESP as well as a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP : XL Group has an Earnings ESP of +6.37%. This is because the Most Accurate Estimate is pegged at 96 cents, higher than the Zacks Consensus Estimate of 90 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

XL Group Ltd. Price and EPS Surprise

XL Group Ltd. Price and EPS Surprise | XL Group Ltd. Quote

Zacks Rank : XL Group carries a Zacks Rank #3, which increases the predictive power of ESP. Moreover, a positive ESP raises confidence about a likely earnings surprise. With this combination, the stock therefore has significantly higher chances of an earnings beat.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some other 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 2. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: PRU , AFG , NMIH

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