Will Allstate (ALL) Beat On Q2 Earnings Despite Cat Loss?

The Allstate Corp. (NYSE:ALL) is scheduled to report second-quarter 2016 results on Aug 3, after the closing bell.

Last quarter, the company delivered a 12% positive earnings surprise. The company beat estimates in here out of the last four reported quarters. The average beat for the trailing four quarters is 3.62%.

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

Why a Likely Positive Surprise?

Our proven model shows that Allstate is likely to beat on earnings as it has the right combination of two key components. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or #2 (Buy) or at least #3 (Hold) to have a significantly higher chance of beating estimates.

Zacks ESP: The Earnings ESP for Allstate is +7.55%. This is because the Most Accurate estimate of 57 cents is above the Zacks Consensus Estimate of 53 cents.

Zacks Rank: Allstate’s Zacks Rank #3 increases the predictive power of ESP.

Factors to Drive Q2 Results

Allstate’s strong foothold in the personal lines business, solid risk-adjusted capitalization will support top-line growth.

Share buyback by the company will aid the bottom line.

Nevertheless, Allstate’s second-quarter earnings will bear burnt of the expected $835 million pre-tax ($542 million after-tax) of catastrophe-related loss incurred in the months of April and May. Because of the exposure of the company’s property and casualty business to catastrophic events, its operating results and financial condition have varied significantly from one period to another and we expect the same in second-quarter earnings.

In addition, declining net investment income will also be a deterrent to earnings growth.

We also expect to see slowdown in growth of Allstate brand's total policies in force as a result of the company’s targeted actions to improve underlying auto profitability.

Continued stress on the auto repair industry from higher industry frequency, cost of repairing newer more complex vehicles and higher total loss volume has led to steadily increasing claim severity, which might be seen in the second quarter too causing a spike in claim costs.

Other Stocks That Warrant a Look

Here are some other financial companies which you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat this quarter:

Prudential Financial, Inc. (NYSE:PRU) has an Earnings ESP of +0.40% and carries a Zacks Rank #3. The company is slated to report second-quarter earnings results on Aug 3.

Manulife Financial Corporation (NYSE:MFC) has an Earnings ESP of +2.94% and carries a Zacks Rank #3. The company is expected to report second-quarter earnings results on Aug 4.

Sun Life Financial Inc. (TO:SLF) has an Earnings ESP of +1.47% and carries a Zacks Rank #2. The company is expected to report second-quarter earnings results on Aug 10.

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