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Insurance Stocks Q1 Earnings on May 3: AIG, MET, LNC, PRU

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The Q1 earnings season is in full swing with 57.6% members of the elite S&P 500 Index reporting solid quarterly numbers so far.

According to the latest Earnings Preview report, the performance of 288 index members that have already reported their financial numbers this quarter indicate that total earnings have increased 13.7% on 8.2% higher revenues. The beat ratio is impressive with 76.4% companies surpassing bottom-line expectations and 68.1% outperforming on the top-line front.

The highly diversified Finance sector (one of the 16 Zacks sectors) has delivered a strong performance so far. Financial performance of 76.6% companies from this sector that have revealed their quarterly results shows 7.8% earnings growth on 6.9% increase in revenues, both on a year-over-year basis. The beat ratio of 69.4% for the bottom line is lower than the S&P 500. Nonetheless, the beat ratio of 68.1% for the top line is on par with the benchmark index. 

The insurance industry has witnessed core business growth, geographic expansion, strategic acquisitions and effective capital deployment via share repurchase in Q1. We believe that these factors are primarily responsible for the sector’s overall impressive performance.

Insurers are expected to witness improvement in underwriting results on the back of a benign catastrophe environment. However, impact of storms in Midwest and the South that occurred during Feb 28, and Mar 22, as well as cyclone Debbie in Australia are likely to weigh on underwriting results.

On the other hand, interest rates were hiked twice in recent times (Dec 2016 and Mar 2017), after remaining low over the past several years. Though the rates have been hiked they still stay at very low levels and are not expected to provide much support to investment income.    But higher rates should offer some respite to life insurers that suffered spread compression on products like fixed annuities and universal life due to persistently low rates.

Let’s find out how these four insurers are likely to perform when they release their quarterly numbers on May 3.

Multi-line insurer MetLife, Inc. (MET - Free Report) is a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. The company has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.27. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

The company carries a Zacks Rank #4 (Sell). Please note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

We expect the company’s Property and Casualty segment to suffer due to underperformance by the auto insurance business. Sales from MetLife’s Japan business is expected to decline as the company shifts its sales to higher return foreign currency-denominated life products from low-return yen life products. In its EMEA segment, we expect to see an increase in sales led by a favorable shift toward higher margin products. The company’s bottom line is likely to be aided by its expense-management initiatives. (Read more:What's in Store for MetLife (MET - Free Report) this Earnings Season?)

Last quarter, MetLife beat the Zacks Consensus Estimate by 0.75%. With respect to the surprise trend, the company surpassed expectations in two of the last four quarters with an average negative surprise of 7.93%.

MetLife, Inc. Price and EPS Surprise

 

MetLife, Inc. Price and EPS Surprise | MetLife, Inc. Quote

Another Multi-line insurer, American International Group, Inc. (AIG - Free Report) , is engaged in a range of global insurance and insurance-related activities. It has an Earnings ESP of 0.00% as both theMost Accurate estimate and the Zacks Consensus Estimate stand at $1.09 per share. Although the stock carries a Zacks Rank #3 (Hold), its Earnings ESP of 0.00% makes surprise prediction difficult.

Please note that our proven model shows that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 for an earnings beat.

Last quarter,AIG missed estimates by 32.3%.With respect to surprise trend, the company’s earnings missed expectations in three of the last four quarters with an average negative surprise of 19.07%.

AIG’s commercial lines segment is expected to deliver strong results on higher premium income. The company’s efforts toward saving costs are also expected to improve its bottom line. However, the company’s Individual Retirement business is expected to suffer due to uncertainty created by the Department Of Labor fiduciary rule and lower fixed annuity sales in the to-be-reported quarter. (Read more: American International Group (AIG - Free Report) Q1 Earnings: What's Up?)

Life insurer Lincoln National Corp.(LNC - Free Report) is engaged in multiple insurance and retirement businesses in the U.S. It has an Earnings ESP of 0.00% as both theMost Accurate estimate and the Zacks Consensus Estimate stand at $1.62. Though the company has a Zacks Rank #3 (Hold), its Earnings ESP of 0.00% makes surprise prediction difficult.

Last quarter, the company beat estimates by 3.51%. With respect to the surprise trend, the company surpassed expectations in two of the last four quarters, with an average beat of 0.23%.

We expect to see earnings upside from disciplined expense management and incremental capital management. The life insurance segment results are expected to show top-line growth due to a change in sales mix. The bottom line is likely to be positively impacted by the company’s expense-management efforts. (Read more: Lincoln National (LNC - Free Report) Q1 Earnings: Is a Surprise in Store? )

Multi-line insurer Prudential Financial, Inc. (PRU - Free Report) offers an array of financial products and services like life insurance, annuities, retirement-related services, mutual funds, investment management and real estate services. Our proven model shows that Prudential Financial is likely to beat on earnings this time. This is because it has an Earnings ESP of +0.38% as the Most Accurate estimate of $2.65 is higher than the Zacks Consensus Estimate of $2.64. The stock also carries a favorable Zacks Rank #2 (Buy).

In the last quarter, the company beat estimates by 6.5%. With respect to the surprise trend, the company surpassed expectations in two of the last four quarters with an average negative surprise of 5.40%.

The company is likely to report bottom-line growth in Q1 on the back of continued share buybacks. The company’s international operations are likely to display solid sales and earnings improvement along with strong core business growth in Q1. However, higher total benefits and expenses are likely to be dampeners in Q1. (Read more: Prudential Financial (PRU - Free Report) Q1 Earnings: A Beat in the Cards?)

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