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American International (AIG): What Awaits in Q1 Earnings?

American International Group, Inc. AIG is set to report first-quarter 2016 results on May 2. Last quarter, it posted a negative earnings surprise of 22.22%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Past Quarter

With increased demand for cyber and M&A insurance, the company’s financial lines of business, property upper-middle market and major account segments may have benefitted. The loss ratio is expected to have improved owing to strategic actions taken to step up Commercial performance.

Also, the company’s initiatives on cost savings will likely lower operating costs and thus drive margins and the bottom line.  But total general operating expenses are expected to be higher.

Reserving actions undertaken in the fourth quarter are expected to benefit the company in the to-be-reported quarter.

Continued share buyback should boost the bottom line.

However, investment results may have suffered. Net investment income is expected to remain soft with yield declining 2 to 4 basis points. Merger expenses are also expected to have increased.

With respect to the surprise trend, AIG surpassed expectations in two of the last four quarters. The average negative surprise was 13.60%.

The company’s share price has been fluctuating over the last few days. We wait to see how the stock reacts to the quarter’s results.

Earnings Whispers

Our proven model does not conclusively show that AIG is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #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: AIG has an ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 99 cents per share.

Zacks Rank: AIG has a Zacks Rank #3, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Stocks to Consider

Here are some companies from the insurance sector that you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

American Financial Group Inc. AFG with an Earnings ESP of +0.60% and a Zacks Rank #2. The company will release first-quarter earnings results on May 2.

Prudential Financial, Inc. PRU with an Earnings ESP of +0.42% and a Zacks Rank #3. The company will release first-quarter earnings results on May 4.

Cigna Corp. CI with an Earnings ESP of +0.46% and a Zacks Rank #3. The company will release first-quarter earnings results on May 6.

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AMER INTL GRP (AIG): Free Stock Analysis Report
 
CIGNA CORP (CI): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
AMER FINL GROUP (AFG): Free Stock Analysis Report
 
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