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Brown & Brown (BRO) Q3 Earnings: Is a Surprise in Store?


Brown & Brown Inc. BRO is set to report third-quarter 2016 results on Oct 20, after the market closes. Last quarter, the company posted a positive earnings surprise of 11.36%. Let’s see how things are shaping up for this announcement.

Factors to be Considered this Past Quarter

Brown & Brown’s third-quarter earnings are expected to have benefitted from both organic initiatives as well as strategic acquisitions. These are also likely have aided commission and fees, which in turn, should have boosted the top line.

Lower written premiums by coastal property programs are likely to have weighed on contingent commissions. Escalating expenses are expected to have limited margin expansion in the to-be-reported quarter.

Additional investments by the insurer are likely to have resulted in net income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables (EBITDAC) margin contraction.

With respect to the surprise trend, Brown & Brown delivered positive surprises in three out of the last four quarters, with an average beat of 7.50%. The stock price has been declining over the last few days. We wait to see how the stock fares post third-quarter earnings release.

BROWN & BROWN Price and EPS Surprise

BROWN & BROWN Price and EPS Surprise | BROWN & BROWN Quote

Earnings Whispers

Our proven model does not conclusively show that Brown & Brown 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: Brown & Brown has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 49 cents.

Zacks Rank: Brown & Brown carries a Zacks Rank #3, which increases the predictive power of ESP. However, an ESP of 0.00% makes surprise prediction difficult.

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 insurance industry that you may want to consider as these have the right combination of elements to post an earnings beat this quarter.

Assurant Inc. AIZ has an Earnings ESP of +4.23% and a Zacks Rank #3. The company is slated to report third-quarter earnings on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chubb Limited CB has an Earnings ESP of +1.92% and a Zacks Rank #3. The company is set to report third-quarter earnings on Oct 25.

Principal Financial Group Inc. PFG has an Earnings ESP of +0.90% and a Zacks Rank #3. The company is likely to report third-quarter earnings on Oct 27.

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