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Will Aflac (AFL) Disappoint Investors this Earnings Season?
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Aflac Inc. (AFL - Free Report) is scheduled to report fourth-quarter and full-year 2016 results on Jan 31, after the closing bell.
Last quarter, Aflac beat the Zacks Consensus Estimate by 4.6%. Let’s see how things are shaping up for this announcement.
Factors to Influence Q4 Results
We expect the results to show an overall increase in sales in Japan as the company started selling its new cancer insurance product designed exclusively for cancer survivors through more than 2000 postal outlets of Japan Post. Overall sales in Japan will however reflect a decline in first sector products since Aflac is taking steps like production caps, commission restructuring, product re-pricing and, in select cases, product discontinuance to control its sales. However, third-sector sales will be higher given product innovation and greater emphasis on selling these products. Profit margins in the segment will, however, be pressured by weakness in net investment income, due to low interest rates in the country.
In another segment – U.S. expenses are expected to rise in the fourth quarter as it makes progress on certain strategic initiatives and increases its promotional and IT spend. The high expense might drain into the segment’s margins. Top-line growth is expected as sales generally rise in the fourth quarter.
Also, repurchasing of shares –– deemed as one of the most attractive means for deploying capital by the company, particularly in the absence of any compelling alternatives –– will drive earnings per share.
For 2016, the company expects operating EPS in the range of $6.40 to $6.60.
Share Price Performance
Shares of the company underperformed the broader sector in 2016, returning 16.2% compared with a gain of 21.02% for the Zacks categorized Medical – Health Maintenance Organization industry. The share price performance is reflective of the pessimism that surrounded the stock due to the low interest rate environment that continued to hinder sales growth in Japan and the U.S. markets.
Earnings Whispers
Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Aflac has an Earning ESP of -0.61%. This is because the Most Accurate estimate stands at a $1.63 per share, a penny below the Zacks Consensus Estimate of $1.64. 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 #5 (Strong Sell) which decreases the predictive power of ESP. 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.
Aflac Incorporated Price, Consensus and EPS Surprise
Here are some companies from the health care sector that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Molina Healthcare Inc. (MOH - Free Report) has an Earnings ESP of +5.33% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings results on Feb 13.
CVS Health Corporation (CVS - Free Report) has an Earnings ESP of +0.60% and a Zacks Rank #3. The company is expected to report fourth-quarter and 2016 earnings results on Feb 9.
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Will Aflac (AFL) Disappoint Investors this Earnings Season?
Aflac Inc. (AFL - Free Report) is scheduled to report fourth-quarter and full-year 2016 results on Jan 31, after the closing bell.
Last quarter, Aflac beat the Zacks Consensus Estimate by 4.6%. Let’s see how things are shaping up for this announcement.
Factors to Influence Q4 Results
We expect the results to show an overall increase in sales in Japan as the company started selling its new cancer insurance product designed exclusively for cancer survivors through more than 2000 postal outlets of Japan Post. Overall sales in Japan will however reflect a decline in first sector products since Aflac is taking steps like production caps, commission restructuring, product re-pricing and, in select cases, product discontinuance to control its sales. However, third-sector sales will be higher given product innovation and greater emphasis on selling these products. Profit margins in the segment will, however, be pressured by weakness in net investment income, due to low interest rates in the country.
In another segment – U.S. expenses are expected to rise in the fourth quarter as it makes progress on certain strategic initiatives and increases its promotional and IT spend. The high expense might drain into the segment’s margins. Top-line growth is expected as sales generally rise in the fourth quarter.
Also, repurchasing of shares –– deemed as one of the most attractive means for deploying capital by the company, particularly in the absence of any compelling alternatives –– will drive earnings per share.
For 2016, the company expects operating EPS in the range of $6.40 to $6.60.
Share Price Performance
Shares of the company underperformed the broader sector in 2016, returning 16.2% compared with a gain of 21.02% for the Zacks categorized Medical – Health Maintenance Organization industry. The share price performance is reflective of the pessimism that surrounded the stock due to the low interest rate environment that continued to hinder sales growth in Japan and the U.S. markets.
Earnings Whispers
Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Aflac has an Earning ESP of -0.61%. This is because the Most Accurate estimate stands at a $1.63 per share, a penny below the Zacks Consensus Estimate of $1.64. 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 #5 (Strong Sell) which decreases the predictive power of ESP. 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.
Aflac Incorporated Price, Consensus and EPS Surprise
Aflac Incorporated Price, Consensus and EPS Surprise | Aflac Incorporated Quote
Stocks That Warrant a Look
Here are some companies from the health care sector that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Anthem Inc. will report fourth-quarter and full-year 2016 earnings results on Feb 1. The company has an Earnings ESP of +6.29% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Molina Healthcare Inc. (MOH - Free Report) has an Earnings ESP of +5.33% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings results on Feb 13.
CVS Health Corporation (CVS - Free Report) has an Earnings ESP of +0.60% and a Zacks Rank #3. The company is expected to report fourth-quarter and 2016 earnings results on Feb 9.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>