The supplemental health and life insurer – Aflac Inc. (AFL) is scheduled to release its second-quarter 2014 financial results after the closing bell on Jul 29.
In the last reported quarter, the company had delivered a 6.3% positive earnings surprise, while the four-quarter trailing average beat is pegged at 4.5%. Let us see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Aflac is likely to beat earnings as it has the required combination of two key components.
Zacks ESP: Aflac has a positive Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $1.60 per share and the Zacks Consensus Estimate of $1.59, is +0.63%.
Zacks Rank: Aflac has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Conversely, Sell-rated stocks (#4 and 5) are never considered going into the earnings announcement.
The combination of Aflac’s Zacks Rank #2 and +0.63% ESP raise chances of an earnings beat on Jul 29.
What is Driving the Better-than-Expected Earnings?
Aflac benefits from healthy capital ratios, product expertise, stable ratings and accelerated capital deployment. Meanwhile, some recovery witnessed in the U.S. economy in the past couple of quarters is likely to have continued into this quarter and boostoperations as well.
Furthermore, a consistent decline in claims and operating expenses, shift to newer products, favorable claim trends and disciplined management of existing accounts are likely to be accretive to Aflac’s earnings.
Based on these factors, management also expects to repatriate funds worth 127 billion yen from Japan to the U.S. in 2014, up from prior estimate 100 billion yen, part of which will likely facilitate share purchases.
However, Aflac is considerably exposed to a challenging operating environment due to fluctuation in the yen/dollar exchange rate and interest rate risk, primarily in Japan that accounts for about three-fourth of the company revenues.Despite the re-pricing initiatives, the company continues to project declining trends in the WAYS sales in 2014 as well.
Meanwhile, persistently lower confidence from small businesses and a few sales associates raise doubts regarding the sales opportunities in the U.S. in 2014. Overall, these factors prompted Aflac’s management to project the earnings growth guidance in low single digits in 2014.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Qiwi Plc (QIWI) has Earnings ESP of 4.8% and a Zacks Rank #1 (Strong Buy).
Mercury General Corp. (MCY) hasEarnings ESP of +14.9% and a Zacks Rank #1.
Moody’s Corp. (MCO) has Earnings ESP of +6.1% and a Zacks Rank #3 (Hold).