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Aflac (AFL) Likely to Top Q1 Earnings: Will the Stock Gain?

We expect Aflac Inc. AFL to beat expectations when it reports first-quarter 2016 results on Apr 26, after the market closes.

Why a Likely Positive Surprise?

Our proven model shows that Aflac has the right combination of two key ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.25%. This is because the Most Accurate estimate of $1.62 is pegged higher than the Zacks Consensus Estimate of $1.60. The positive ESP is a meaningful and leading indicator of a likely earnings beat.

Zacks Rank: Aflac holds a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating on earnings.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
 
Currently, the stock is trading at $67.40. We expect the release to lead to stock movement.

What is Driving the Better-Than-Expected Earnings?

Aflac has attempted to enhance its brand loyalty and account penetration by paying claims in a single day via its “One Day Pay” program lending a competitive edge to the insurer. This in turn is expected to have a positive impact on the company’s earnings in the to-be-reported quarter.

Moreover, the company is likely to have witnessed an increase in revenues as well as pretax income in the quarter. In addition, Aflac U.S. is likely to have experienced premium sales growth.

The company is expected to have witnessed improved underwriting margins on the strength of its franchise in Japan and the U.S. supplemental health markets.

Aggressive share repurchases aided additional upside to the bottom line. The company targets to buyback shares worth $1 billion in the first half of the year.

However, the company’s operating profitability might suffer from the weak yen/dollar exchange rate. Moreover, exposure low interest rates might hinder sales of first-sector (life insurance) products in Japan, thereby weighing on the top line.

With respect to the surprise trend, the company delivered positive surprises in two of the last four quarters with an average beat of 2.21%.

Other Stocks to Consider

Here are three other stocks from the insurance industry which you may want to consider as our model shows that even these have the right combination of elements to post an earnings beat this quarter:

The Hartford Financial Services Group, Inc. HIG has an Earnings ESP of +1.94% and a Zacks Rank #3. The company is set to report first-quarter earnings on Apr 28.

American Financial Group Inc. AFG has an Earnings ESP of +4.13% and a Zacks Rank #2. The company is slated to report first-quarter earnings on May 2.

The Allstate Corporation ALL has an Earnings ESP of +1.43% and a Zacks Rank #3. The company is set to report first-quarter earnings on May 4.

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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
 
AFLAC INC (AFL): Free Stock Analysis Report
 
HARTFORD FIN SV (HIG): Free Stock Analysis Report
 
ALLSTATE CORP (ALL): Free Stock Analysis Report
 
AMER FINL GROUP (AFG): Free Stock Analysis Report
 
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