Is A Beat In The Cards For Travelers (TRV) In Q1 Earnings?

The Travelers Companies, Inc. (NYSE:TRV) is slated to report first-quarter 2018 results on Apr 24 before the market opens. Last quarter, the company delivered a positive earnings surprise of 50.00%.

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

Premiums, contributing a lion’s share to the top line are expected to increase on the back of higher retentions and renewals, improving pricing environment, rise in new business as well as an expansive product portfolio. Each segment is likely to have delivered improved premiums. The Zacks Consensus Estimate for the metric is pegged at $6.6 billion, up 1.3% year over year.

Commercial businesses are expected to retain the momentum of delivering a better performance. Pricing and underwriting actions implemented are anticipated to consistently drive results in auto business.

A gradual rise in interest rates continues to favor insurers. Travelers estimates $25-$30 million of higher after-tax net investment income on a quarterly basis compared with the tally in 2017. This projection is based on the growth of fixed income portfolio size, higher short-term interest rates, the new U.S. Tax reform as well as specific securities, scheduled to mature in 2018.

Riding on the strength of improved premiums and net investment income, total revenues in the to-be-reported quarter are estimated to have increased. The Consensus Estimate for revenue is pegged at $7.2 billion, up 4.4% year over year.

Given a not-so-active catastrophe environment and prudent underwriting practices, the company is likely to have delivered an improved underwriting profitability in the impending quarterly performance. The Zacks Consensus Estimate for combined ratio in the Insurances segment is pegged at 94%, improving 200 basis points year over year. Travelers estimates underlying underwriting margins in each segment to improve in 2018.

A lower tax rate, courtesy of the new tax legislation effective this Jan 1, 2018, reduces tax incidence. This along with share buybacks is anticipated to have provided an additional boost to the bottom line. The consensus mark for the metric stands at $2.71, up 25.5% year over year.

Nonetheless, a higher debt-level for an increase in interest expenses weighing on the margin expansion.

What Our Quantitative Model States

Our proven model states that Travelers is likely to beat on earnings this 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.

Zacks ESP: Travelers has an Earnings ESP of +1.09%. This is because the Most Accurate estimate is pegged at $2.74, higher than the Zacks Consensus Estimate of $2.71. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

The Travelers Companies, Inc. Price and EPS Surprise

Zacks Rank: Travelers carries a Zacks Rank #3, which increases the predictive power of ESP.

We caution against the Sell-rated stocks (#4 or 5) 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 as well are as follows:

American Financial Group, Inc. (NYSE:AFG) is set to report first-quarter earnings on May 2 and has an Earnings ESP of +2.40%. The company is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Allstate Corporation (NYSE:ALL) has an Earnings ESP of +3.44% and a Zacks Rank of 3. The company is set to announce first-quarter earnings on May 1.

Infinity Property and Casualty Corporation (NASDAQ:IPCC) has an Earnings ESP of +8.05% and is a Zacks #3 Ranked player. The company is set to announce first-quarter earnings on May 3.

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