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Will American International (AIG) Disappoint Q2 Earnings?

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Global multi-line insurer American International Group Inc. (AIG - Free Report) is scheduled to release second-quarter 2014 financial results after the closing bell on Aug 4.

In the last reported quarter, the company delivered a positive earnings surprise of 12.1%. Notably, AIG has maintained its earnings streak in the trailing four quarters with an average beat of 16.7%. Let us see how things are shaping up for this announcement.

Factors to Consider

AIG’s financials reflect the impact of several one-time items, which fail to instill confidence regarding steady growth. The divestment of ILFC in May has liberated the company of the related liabilities as well as improved capital, while also supporting higher share buybacks.

Moreover, the receipt of about $2 billion as settlements from residential mortgage legal disputes with various banks, as announced in July, including about $650 million from Bank of America Corp. (BAC - Free Report) paves the way for incremental cash flow. Some of this is expected to be recorded in the second quarter as well.

Earlier this month, AIG intended to redeem bonds worth over $2.0 billion that were due in 2016 and 2017, thereby improving leverage to some extent. However, the scope of significant growth from these developments is elusive, given the risks lingering on the core fundamentals.

Moreover, the lower premiums and the low interest rate environment have been adversely affecting AIG’s top line and investment returns over the past several quarters. Additionally, stiff global pricing competition and unfavorable reserves in the property-casualty (P&C) unit weigh on underwriting results.

Hence, robust growth in the near term does not seem likely, given the absence of any near-term fundamental growth catalyst, which also casts a shadow on the outlook of AIG in the coming quarters.

Earnings Whispers

Our proven model shows that AIG is unlikely to beat earnings as it lacks the required combination of two key components.

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 $1.04 per share and the Zacks Consensus Estimate of $1.05, is -0.95%.

Zacks Rank: AIG’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings beat.

Sell-rated stocks (#4 and 5) are never considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum. 

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 quarter: 

National General Holdings Corp (NGHC - Free Report) has Earnings ESP of +8.00% and a Zacks Rank #1 (Strong Buy).

Qiwi Plc (QIWI - Free Report) has Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).

Voya Financial Inc. (VOYA - Free Report) has Earnings ESP of +2.86% and a Zacks Rank #3 (Hold).

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