The Q4 earnings season is in full swing with 34.1% of the elite S&P 500 Index having reported quarterly results so far. According to the latest Earnings Outlook , the performance of the 171 index members that have already reported their financial numbers so far (as of Jan 30) indicate total earnings increase of 6% on 3.1% growth in revenues. The beat ratio is strong with 64.3% companies surpassing bottom-line expectations and 54.4% outperforming on the top-line front.
The Finance sector (one of the 16 Zacks sectors) is a big contributor to the aggregate growth picture at this stage. In fact, the financial performance of 57.9% companies from this sector that have revealed their quarterly results shows 11.3% earnings growth on 3.1% increase in revenues, both on a year-over-year basis, with 67.5% beating EPS estimates and 45% beating revenue estimates.
The Finance sector is highly diversified and includes several industries like insurance, banks and securities exchanges to name a few.
The insurance industry was severely affected by catastrophe losses in 2016 compared with benign cat activity in 2015. It was also hit by Hurricane Matthew in Q4. The industry is likely to have incurred between $3 billion and $9 billion in loss in the fourth quarter owing to the severity of the hurricane. The quarter also bore the brunt of an earthquake in New Zealand and other catastrophe events.
These are expected to have weighed on the underwriting results of insurers, hurting their underwriting income and combined ratio. However, prudent underwriting practices should bring some respite.
Though the Fed raised the interest rate, it was toward the end of Q4. Insurers, therefore, are unlikely to reap the benefits of the rate hike. Nonetheless, the broader invested asset base and alternative asset classes are positives. Also, spread compression on products like fixed annuities and universal life is likely to have improved.
While the expansion of the Affordable Care Act has ushered in good news for insurers offering health benefits, improvement in the housing market should support mortgage insurers. Also, improving healthcare and benefits consulting service should boost the top line of insurance brokers.
To sum up, core business growth, geographic expansion and strategic acquisitions, an improving employment scenario and a better payroll should prove beneficial for insurance companies in the quarter under review.
With a number of companies likely to report their Q4 results soon, we expect to get a clearer idea of the trends this earnings cycle. Let's find out how these four insurers might perform when they come up with their quarterly numbers on Feb 2.
The Hartford Financial Services Group, Inc. 's HIG personal lines segment is expected to deliver a solid performance on the back of the new strategies implemented by the leadership team.
In spite of stiff competition, the company has been able to strike a proper balance between underwriting discipline and profitable growth in select markets. This is expected to have supported growth in the commercial lines as well.
Workers' compensation is likely to continue delivering high margins in the fourth quarter backed by pricing and low cost trends.
The Hartford's impressive marketing efforts should have given a boost to the quarter's top line. Use of digital and dative analytics to improve customer experience thorough its industry-leading customer service centers should also contribute to revenue growth. We also expect the same from strategic partnerships signed to expand the mutual funds segment.
However, a persistently low interest rate environment is likely have limited net investment income growth in the fourth quarter, albeit the hike in December.
Last quarter, the company delivered a positive earnings surprise of 11.58%.
This time the company is unlikely to come up with a beat as it has a Zacks Rank #2 (Buy) but an Earnings ESP of 0.00%. Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 95 cents per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
With respect to the surprise trend, The Hartford Financial missed expectations in two of the last four quarters with an average miss of 11.7%. (Read more: The Hartford: What's in Store this Earnings Season? )
Hartford Financial Services Group, Inc. (The) Price and EPS Surprise
Validus Holdings, Ltd.VR , through its principal operating subsidiary, is a global provider of short-tail lines of reinsurance including property catastrophe, property pro-rata and property per risk, marine and energy, and other specialty lines.
Last quarter, the company missed earnings estimates by 1.92%. This time, the company has an Earnings ESP of +5.13% as the Most Accurate estimate stands at 82 cents per share, higher than the Zacks Consensus Estimate of 78 cents. Moreover, it sports a Zacks Rank #1 (Strong Buy), which increases our predictive power of an earnings beat. You can see the complete list of today's Zacks #1 Rank stocks here .
With respect to the surprise trend, Validus Holdings missed expectations in three of the last four quarters with an average miss of 2.91%.
Validus Holdings, Ltd. Price and EPS Surprise
Marsh & McLennan Companies, Inc. 's MMC earnings are expected to see accretion from significant investments for growth over many years, both organic and through acquisitions.
The company's revenues have been growing consistently for the past many quarters and we expect the trend to have continued in the fourth quarter. Revenues will see an upside from the company's vast geographical footprint. Both its segments - Risk & Insurance Services and Consulting - are expected to contribute to growth. Moreover, disciplined expense management will likely drive margin growth.
However, additional expense of a cent per share from incremental pension expense will affect adjusted earnings per share.
Last quarter, Marsh & McLennan reported in line with the Zacks Consensus Estimate. This time the company is unlikely to come up with a beat as it has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. The Most Accurate estimate and the Zacks Consensus Estimate are pegged at 69 cents per share.
With respect to the surprise trend, Marsh & McLennan beat expectations in two of the last four quarters with an average beat of 1.20%. (Read more: Marsh & McLennan: Will it Disappoint in Q4 Earnings? )
Marsh & McLennan Companies, Inc. Price and EPS Surprise
Cigna Corp. 's CI upcoming results are expected to demonstrate its continued operating strength in the Global Health Care and Global Supplemental benefits business lines.
However, Cigna's U.S. individual business is likely to have experienced softness similar to the rest of the industry.
Yet, we expect the company to continue posting favorable results on solid revenue growth in government business, disciplined expense management and effective medical cost management. Favorable medical utilization along with medical cost management are expected to contribute to the bottom line. Moreover, the company's strong balance sheet, which enables share buyback, should support its results.
Last quarter, Cigna beat our earnings estimate by 1.57%. This time again the company is likely to come up with a beat as it has a Zacks Rank #3 and an Earnings ESP of +2.30%. The Most Accurate estimate of $1.78 per share is higher than the Zacks Consensus Estimate of $1.74.
With respect to the surprise trend, Cigna beat expectations in three of the last four quarters, with an average negative surprise of 0.90%. (Read more: Can Cigna Sustain its Earnings Surprise Streak in Q4? )
Cigna Corporation Price and EPS Surprise
(We have reissued this blog to correct an error. The original version, published earlier today, should no longer be relied upon.)
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