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Will Changing Business Strategy Aid Aflac (AFL) Q2 Earnings?

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Aflac Inc. (AFL - Free Report) is scheduled to report second-quarter 2017 financial results on Jul 27, after the closing bell.

Last quarter, Aflac surpassed the Zacks Consensus Estimate by 3.09%. The company exceeded earnings estimates in three of the last four quarters with an average positive surprise of 0.85%.

Let’s see how things are shaping up for this announcement.

Q2 Flashback    

Aflac has huge exposure to the life insurance business in Japan and has thus been suffering from a persistent low interest rate in the region. The same is expected to have impacted earnings in the to-be-reported quarter.

Nevertheless, sales from this segment will benefit from an increase in third-sector sales given the company’s emphasis on promoting these products which are less interest rate sensitive and carry strong and stable margins.  

Also, the introduction of third-sector products such as a cancer insurance product early last year, revised EVER and get products in the first quarter have been well received in the market place and will contribute to top-line growth.  

On the other hand, the company’s efforts in pulling out first-sector products and repricing other products in this category to fight the prolonged low interest rate environment may continue to restrict their sales.
In its U.S. business segment, we expect to see improved persistency, which in turn should support premium growth. The segment’s expense ratio is expected to remain high due to investments in a certain platform, including group administrative platform, enrollment platform and related technology.

However, the company’s continuous efforts to return capital to its shareholders via share buyback will cushion its bottom line.

The company will, however, incur high cost on account of its Japan branch conversion.

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote

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 Earnings ESP of 0.00%. This is because the Most Accurate estimate stands at $1.63 per share, which is in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Aflac carries a Zacks Rank #3 (Hold), a 0.00% Earnings ESP makes our surprise prediction difficult.

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.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

Fiserv, Inc. (FISV - Free Report) has an Earnings ESP of +1.63% and a Zacks Rank #2 (Buy). The company is expected to report second-quarter earnings results on Aug 1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CNA Financial Corp. (CNA - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #3. The company will report second-quarter earnings results on Jul 31.

Financial Engines, Inc. (FNGN - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2. The company will report second-quarter earnings results on Aug 1.

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