What's In Store For XL Group (XL) This Earnings Season?

XL Group Ltd (NYSE:XL) is slated to report first-quarter 2017 results on Apr 26, after the market closes. Last quarter, the company had a positive earnings surprise of 38.24%. Let’s see how things are shaping up for this announcement.

Factors to be Considered this Quarter

XL Group is likely to report top-line growth in the first quarter banking on higher gross premiums written owing to its diversified product offerings. Also, the Reinsurance segment is likely to have reported higher premiums.

Moreover, 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.

However, the property and casualty (P&C) insurer is likely to have experienced a decline in operating expenses as the ongoing integration and synergy benefits have been gaining traction. The company projects such expenses to decrease in line with the previous estimates of $1.77–$1.84 billion decline in 2017.

Also, the insurer expects net investment income to remain under pressure, owing to the still low interest rate environment and reduced cash flow due to its share buyback program. The company has assets of about $3.7 billion with an average gross book yield of 2.5%, which is expected to mature and be paid down over the next 12 months. This, in turn, can put pressure on the company’s net investment income. Nonetheless, the slight increase in interest rates might be some respite.

With respect to the surprise trend, the company delivered positive surprises in three of the last four quarters with an average beat of 18.32%.

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 -4.26%. This is because the Most Accurate estimate is pegged at 45 cents, while the Zacks Consensus Estimate stands at 47 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 #3. Though a favorable Zacks Rank increases the predictive power of ESP, we need a positive Earnings ESP to be confident about an earnings beat.

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

Stocks to Consider

Here are some companies from the same space that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

CNA Financial Corporation (NYSE:CNA) , which is set to report first-quarter earnings on May 1, has an Earnings ESP of +10.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group, Inc. (NYSE:AFG) has an Earnings ESP of +2.19% and a Zacks Rank #3. The company is set to report first-quarter earnings on May 3.

Third Point Reinsurance Ltd. (NYSE:TPRE) has an Earnings ESP of +25.32% and a Zacks Rank #3. The company is slated to report first-quarter earnings on May 4.

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