The ProAssurance Corporation ( PRA ) is set to report fourth-quarter and full-year 2014 earnings results on Feb 24, 2015. Last quarter, it posted a 6.85% negative earnings surprise. Let us see how things are shaping up for this announcement.
Factors Affecting this Past Quarter
ProAssurance is a property and casualty insurer well known for it incessant efforts to return more value to its shareholders. It is a regular dividend payer and last quarter it increased its dividend by 3.3%, which implies a yield of 2.68%. This yield is higher than the industry yield of 1.79% and also above that of other players in the industry like Allied World Assurance Company Holdings, AG ( AWH ) and Endurance Specialty Holdings Ltd. ( ENH ) with yields of 2.22% and 2.14%, respectively.
To return more profits to its shareholders, the company announced a special dividend and also authorized an extension to its share repurchase authorization. Till Nov 2014, the company deployed $206 million toward share repurchases. This marks a significant level of capital deployment as this is the highest amount that has been returned in any single year by ProAssurance since its inception. Increased share repurchases should reduce share count leading to an increase in earnings. Additionally strategic acquisitions and geographic expansions in the past have been boosting gross premiums written.
However, the company is facing serious issues regarding premium retentions due to increased competition. Another major risk is associated with ProAssurance's investment portfolio, which primarily consists of fixed income securities. The declining interest rate has forced the company to reinvest its matured investments at comparatively lower interest rates, leading to declining investment income. ProAssurance has been consistently suffering from higher underwriting, policy acquisition and operating expenses which weigh on the bottom line.
Our proven model does not conclusively show that ProAssurance is likely to beat estimates 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 here as you will see below.
Zacks ESP: ProAssurance has an ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 76 cents per share.
Zacks Rank: ProAssurance carries a Zacks Rank #4 (Sell) which decreases the predictive power of ESP.
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
A Stock to Consider
Here is a stock in the P&C insurance space you may want to consider as our model shows that it has the right combination of elements to post an earnings beat.
HCI Group, Inc. ( HCI ) with an Earnings ESP of +4.35% and a Zacks Rank #2 (Buy).