XL Group (XL) Q2 Earnings: Is It Likely To Disappoint?

XL Group Ltd (NYSE:XL) is slated to report second-quarter 2017 results on Jul 26, after the market closes. Last quarter, the company delivered a positive earnings surprise of 8.70%. Let’s see how things are shaping up for this announcement.

Factors to be Considered this Quarter

XL Group is likely to report lower underwriting profit in the soon-to-be-reported quarter due to higher catastrophe losses. As a result, the company is expected to witness a noticeable deterioration in the combined ratio as well.

Net investment income is likely to remain under pressure, owing to the still low interest rate environment. The company has likely witnessed lower level of cash flow due to its share buyback program.

However, this P&C insurer is likely to report top-line growth in the second quarter, banking on higher gross premiums written owing to its diversified product offerings. Reinsurance segment in particular is likely to have reported higher premiums.

Further, continued share buybacks should have aided the company’s bottom line. In fact, the company expects to complete not less than $700 million in buyback in 2017.

With respect to the surprise trend, the company delivered positive surprises in all of the last four quarters with an average beat of 28.14%.

Earnings Whispers

Our proven model does not conclusively show that XL Group is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: XL Group has an Earnings ESP of -1.12%. This is because the Most Accurate estimate is pegged at 88 cents, while the Zacks Consensus Estimate stands at 89 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: XL Group carries a Zacks Rank #4 (Sell).

Note that we caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some better-ranked companies from the insurance industry with the right combination of elements to post an earnings beat this quarter are as follows:

CNA Financial Corporation (NYSE:CNA) , which is set to report its second-quarter earnings on Jul 31, has an Earnings ESP of +4.00% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Life Financial Inc. (TO:SLF) has an Earnings ESP of +2.74% and a Zacks Rank #1. The company is set to report its second-quarter earnings on Aug 9.

Manulife Financial Corporation (NYSE:MFC) has an Earnings ESP of +10.00% and a Zacks Rank #1. The company is slated to report its second-quarter earnings on Aug 9.

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