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Aflac (AFL) to Report Q4 Earnings: Is a Beat in the Cards?

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Aflac Inc. (AFL - Free Report) is slated to report fourth-quarter 2020 results on Feb 3, after market close. The company delivered an earnings surprise of 24.3% in the last reported quarter.

In the third quarter, the company’s earnings per share of $1.39 beat the Zacks Consensus Estimate by 24.1% and also grew 19.8% year over year. Results benefited from higher revenues, partly offset by elevated costs.

Factors to Impact Q4 Results

In Japan, total sales are likely to have declined from the impact of ramped-down activity due to COVID-19 and a year-over-year comparison as Japan Post delivered an impressive performance in 2019. Also, the company's in-person sales might have posed a challenge in the fourth quarter.

Notably, it continues to actively generate business with focus on direct mail and calling campaigns to its existing and prospective customers. In addition, it is promoting digital and web-based sales to the target groups. These trends might reflect on fourth-quarter results too.

Despite the aforementioned efforts, overall sales are likely to have dwindled as both JPI and JPC (collectively accounting for approximately 25% of Aflac Japan’s third-sector sales in 2019), each being an affiliate of Japan Post Holdings, were found guilty of conducting business malpractices and were put on a three-month suspension (starting Dec 27, 2019) from selling insurance products.

However, management believes that the sales of Aflac Japan cancer insurance through JPC and JPI are unlikely to return to the 2018-levels in the near term. For 2020, the company expects weak earned premiums in the 0.7% range in the third sector and first-sector protection products. The fourth-quarter earnings figures from Japan are thus expected to have remained subdued.

The company is also expected to have borne COVID-related claims. Further, it is likely to have incurred expenses for going paperless in its policyholder services operation.

Also, the company’s U.S. segment, which relies heavily on face-to-face agent-client interaction, is likely to have been hit hard by the restrictions imposed on physical interactions. Management had earlier anticipated that a combination of reduced sales and persistency is likely to weigh on the segmental revenues during the second half of 2020.

Additionally, the benign interest rate environment is expected to have been a headwind to net investment income.

In the fourth quarter, the company completed its acquisition of Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business.

This deal will further enhance its position in the broker distribution network in the United States. However, the transaction will have little effect on the company’s fourth-quarter results.

Aflac’s cost-saving initiative might have contributed to its margins. The company offered a voluntary separation plan to eligible employees, which will reduce its U.S. insurance and corporate workforce by approximately 9%. For the fourth quarter, it expects run-rate annual savings in the range of $45-$50 million and an approximate $45 million worth of one-time expense associated with the separation plan. Though these costs will drain margins in the near term, a more agile workforce will increase the segment’s efficiency over the medium-to-long term.

During the quarter, the company raised its dividend by 17.9%, reflecting its strong financials. Moreover, its share buyback program in the period is likely to have aided its bottom line.

Earnings & Revenue Expectations    

The Zacks Consensus Estimate for Aflac’s fourth-quarter earnings of $1.04 per share implies a 0.97% rise from the prior-year period’s reported number. Likewise, the consensus estimate for sales of $5.53 billion suggests a 1.33% slip from the year-ago quarter’s reported figure.

Earnings Surprise History

The company boasts a stellar earnings surprise track. Its bottom line surpassed estimates in all the trailing four quarters, the average being 14.84%. 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 predicts:

Our proven model predicts a beat for Aflac this earnings season. The combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Aflac has an Earnings ESP of +3.46%.

Zacks Rank: Aflac currently carries a Zacks Rank of 3.

Other Stocks to Consider

Some other insurance stocks with the right combination of elements to deliver an earnings beat this reporting cycle are as follows:

The Allstate Corporation (ALL - Free Report) has an Earnings ESP of +5.72% and is currently Zacks #3 Ranked. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cincinnati Financial Corporation (CINF - Free Report) has an Earnings ESP of +0.83% and presently a #3 Ranked player.

NMI Holdings Inc. (NMIH - Free Report) has an Earnings ESP of +5.43% and is currently Zacks #3 Ranked.

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