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Aflac (AFL) to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

Aflac Inc. AFL is scheduled to announce fourth-quarter and full-year 2018 results on Jan 31, after the closing bell. Its quarterly revenues and earnings are expected to improve year over year, partly offset by an increase in expense.

The Zacks Consensus Estimate for earnings is 94 cents per share on revenues of $5.50 billion, which translate into year-over-year growth of 17.5% and 0.9%, respectively.

Factors to Affect Q4 Results

We expect higher contribution from Aflac’s Japan business, which is gaining ground after suffering (till the recent past) from near zero interest rates in the region. The company’s strategy to work on a change in business mix through efforts to deemphasize sales of first-sector (life insurance) products in Japan and promote sales of third-sector products that are less interest sensitive, have actually paid off. Sales in Japan should gain from a cancer product introduced recently.

For the fourth quarter, management expects third-sector new sales growth for the year to be in low single digits. For 2018, the company anticipates that in its Japan business, third-sector earned premium will continue its steady growth in the 2% to 3% range, reflecting Aflac's stable sales and high persistency.

We expect to see continued strength in the profitability of Aflac U.S. led by ongoing investment in this 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.

We also expect to see new sales increase in the quarter driven by overall growth of broker distribution and improved growth in the company’s career sales distribution. Broker distribution is expected to drive sales in the mid-case market, which was an area of focus for the company in 2018. Career sales distribution should drive sales in the small-case market. For the full year, Aflac anticipates growth in earned premium within 2% to 3% and new annualized premium sales growth within 3% to 5%.

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, benefiting from higher LIBOR rates.

Aflac is making continued investments in digital initiatives, sales, administration and customer experience. These initiatives should keep expenses at elevated levels for the to-be-reported quarter.

Also, the company’s continued efforts to return capital to its shareholders via share buyback will cushion its bottom line. The company anticipates $1.1-$1.4 billion of share buyback in 2018.

For 2018, the company expects to achieve the high end of its previously issued earnings per share guidance of $3.90-$4.06.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 7.17%. This is depicted in the chart below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote

Here is what our quantitative model predicts:

Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.

Earnings ESP: Aflac has an Earning ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our  Earnings ESP Filter.

Zacks Rank: Aflac carries a Zacks Rank #2 (Buy). However, its Earnings ESP of 0.00% leaves our surprise prediction inconclusive.

Stocks Worth Considering

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

Axis Capital Holding Limited AXS, expected to report fourth-quarter earnings on Jan 30. It has an Earnings ESP of +1.31% and a Zacks Rank #3 (Hold).

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

W.R. Berkley Corp. WRB with an Earnings ESP of +3.51% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Jan 29.

Radian Group Inc. RDN has an Earnings ESP of +3.03% and a Zacks Rank #1. The company is expected to announce fourth-quarter earnings on Feb 8.

Zacks' Top 10 Stocks for 2019

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