Send me real-time posts from this site at my email

Will Cat Loss Affect CNA Financial's (CNA) Earnings in Q4?

CNA Financial Corporation CNA is slated to report fourth-quarter 2018 results on Feb 11, before the market opens. In the last reported quarter, the company delivered a positive surprise of 3.54%.

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

CNA Financial is likely to have reported premium growth in the to-be-reported quarter, fueled by a probable increase in new business, renewal premium change and solid retention.

Also, higher premiums across its segments — Commercial, International and Specialty — are expected to drive this upside. Moreover, a strong execution across all production metrics might have contributed to this probable improvement. In fact, the Zacks Consensus Estimate for the metric is pegged at $1.8 billion, reflecting a 1.6% rise from the prior-year period.

Riding on the strength of rising interest rates, possibility of higher limited partnership returns and stable fixed income returns, we anticipate CNA Financial to witness better investment results in the fourth quarter.

On the back of improved premiums and investment results, CNA Financial has possibly experienced top-line growth in the soon-to-be-reported quarter. The Zacks Consensus Estimate for revenues is currently pegged at $2.6 billion, representing a 7% increase from the year-ago quarter.

CNA Financial continues to efficiently manage its long-term care book of business through product claim management, thereby mitigating risk and aiding rate increase.

Being a property and casualty (P&C) insurer, CNA Financial is persistently exposed to unpredictable weather-related events. Consequently, in the fourth quarter, the company is likely to suffer a substantial level of catastrophe loss, stemming from the cat events that occurred during the period. This in turn, might affect the insurer’s combined ratio, thus denting its underwriting performance in the quarter to be reported. In fact, the consensus mark for the combined ratio is pegged at 95%, indicating a deterioration of 100 basis points from the prior-year quarter.

Further, the company has probably incurred higher expenses, primarily due to increasing net claims and benefits plus amortization of deferred acquisition costs. This rise in expenses could restrict the operating margin expansion, hurting the company’s overall profitability in turn.

The impact of catastrophe loss and anticipated higher expenses could weigh on the company’s bottom line in the fourth quarter. In fact, the Zacks Consensus Estimate for earnings stands at 81 cents, reflecting a decline of 22.9% from the year-earlier quarter.

What Our Quantitative Model States

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

Earnings ESP: CNA Financial has an Earnings ESP of -27.39%. This is because the Most Accurate Estimate is pegged at 59 cents, lower than the Zacks Consensus Estimate of 81 cents. You can uncover the best stocks to buy or sell before they are reported with our">Earnings ESP Filter.  

Zacks Rank: CNA Financial carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the finance sector with the perfect mix of elements to outshine estimates this time around are as follows:

Ares Capital Corporation ARCC is set to report fourth-quarter earnings on Feb 12. The company has an Earnings ESP of +1.10% and a Zacks Rank #3. You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

AerCap Holdings N.V. AER has an Earnings ESP of +6.84% and a Zacks Rank of 2. The company is scheduled to release fourth-quarter earnings on Feb 14.

Agree Realty Corporation ADC has an Earnings ESP of +0.88% and a Zacks Rank of 3. The company is slated to announce fourth-quarter earnings on Feb 21.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Aercap Holdings N.V. (AER): Free Stock Analysis Report
Ares Capital Corporation (ARCC): Get Free Report
CNA Financial Corporation (CNA): Free Stock Analysis Report
Agree Realty Corporation (ADC): Get Free Report
To read this article on click here.
Zacks Investment Research

Welcome!!! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue