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Aflac (AFL) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Aflac Inc. AFL is scheduled to announce second-quarter 2019 results on Jul 25, after the closing bell.

The Zacks Consensus Estimate for earnings per share is pegged at $1.07, same as the year-ago reported figure while the same for revenues stands at $5.48 billion, which indicates decline of 1.61% from the year-ago reported figure.

Factors to Affect Q2 Results

We expect to see continued strength in the profitability of Aflac U.S., led by ongoing investment in the business, delivery of value-added services and increased client retention, product partnering to drive improved account values and employee access, and investment in administrative capabilities. The Zacks Consensus Estimate for revenues at the U.S. unit is $1.65 billion, up 3.1% year over year.

However, sales in its Japan business will remain subdued due to decline in third-sector and first-sector protection sales, following a strong cancer product launch in 2018. Also, continued reduction in first-sector savings products as expected by the company, after re-pricing in April 2017, should lead to an overall decline in sales. 

Net earned premium is expected to decline as first-sector savings policies become paid-up (paid-up means when all the premium payments are complete and the insurer will not receive any premium on those policies). The company expects third-sector and first-sector protection combined sales to be down in the high teens in the second quarter.

The Zacks Consensus Estimate for revenues at the Japan unit is $3.7 billion, almost same year over year.

Investment income performance, both in Japan and the United States, should be strong driven primarily by accelerated growth in the company’s floating rate portfolio and variable income from alternative investment portfolio.

The company has increased its investment in core technology platforms and growth initiatives to drive performance and achieve operating effectiveness. This investment will continue to be a strategic focus through 2019, which might increase operating expenses and consequently pressurize margins.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimate in each of the trailing four quarters, with an average positive surprise of 7.1%. This is depicted in the chart below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote

 

Here is what our quantitative model suggests:

Our proven model conclusively shows that Aflac is likely to beat earnings estimates this season. This is because it has the right combination of a positive Earnings ESP and a top Zacks Rank.

Earnings ESP: Aflac has an Earnings ESP of +0.78%. This is because the Most Accurate Estimate of $1.08 per share is pegged higher than the Zacks Consensus Estimate of $1.07 per share. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Aflac carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Other Stocks Worth Considering

Some other stocks from the insurance industry with the right combination of elements to surpass estimates this time around are as follows:

Marsh & McLennan Companies, Inc. MMC is set to report second-quarter earnings on Jul 30 and has an Earnings ESP of +0.63%. The company has a Zacks Rank #3 (Hold). 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Lincoln National Corp. LNC has an Earnings ESP of +0.52% and a Zacks Rank of 3. The company is set to release second-quarter earnings results on Jul 31.

The Hartford Financial Services Group, Inc. HIG has an Earnings ESP of +0.63% and a Zacks Rank #3. The company is slated to announce second-quarter earnings on Aug 1.

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