Global multi-line insurer – American International Group Inc. (AIG - Analyst Report) is scheduled to release its first-quarter 2014 financial results after the closing bell on May 5.
In the last reported fourth-quarter 2013, the company had delivered a positive earnings surprise of 19.8%, while the four-quarter trailing average beat is pegged at 26.8%. Let’s see how things are shaping up for this announcement.
Factors that Seek Attention
Being a global insurer, AIG faces intense competition and regulatory challenges, while volatility in interest rates and currency pose additional financial and operating risks. These factors are also affecting the top line adversely given consistently lower premiums, lower investment income and unfavorable reserves in the property-casualty (P&C) unit, which also led to underwriting losses in the past couple of years.
However, the successful streamlining and de-risking of business as well as the capital flexibility attained with the divestment of ILFC score well with the ratings agencies. Improved assets under management (AUM) and financial leverage also remain impressive.
Nonetheless, any expectation of generating robust growth appears overly ambitious at present, given the absence of any near-term fundamental growth catalyst, overall casting shadow on the outlook of AIG in the upcoming quarters.
Our proven model shows that AIG is unlikely to beat earnings as it lacks the required combination of two key ingredients.
Zacks ESP: AIG has a negative Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $1.06 per share and the Zacks Consensus Estimate of $1.08, is -1.85%.
Zacks Rank: AIG has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have significantly higher chances of beating earnings. Sell-rated stocks (#4 and 5) are kept under the radar and are never considered going into the earnings announcement.
The combination of AIG’s Zacks Rank #3 and -1.85% ESP deter us from being confident of an earnings beat on May 5.
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 coming quarter:
CBOE Holdings Inc. (CBOE - Analyst Report), earnings ESP of +3.70% and a Zacks Rank #3 (Hold).
Humana Inc. (HUM - Analyst Report), earnings ESP of +1.55% and a Zacks Rank #3.
Allstate Corp. (ALL - Analyst Report), earnings ESP of +0.88% and a Zacks Rank #3.