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Can Commissions and Fees Up Willis Towers (WLTW) Q4 Earnings?

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Willis Towers Watson Public Limited Company (WLTW - Free Report) is slated to report fourth-quarter 2017 results on Feb 8 before the market opens. Last quarter, the company missed the Zacks Consensus Estimate by 0.25%.

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

Commissions and fees in the to-be-reported quarter are likely to have improved on organic growth across all segments and a rich contribution from acquisitions. An improving rate environment might have cushioned better investment results.

The above positives have possibly driven the top line in the fourth quarter. The Zacks Consensus Estimate for revenues is pegged at $1.99 billion, up 3.4% year over year.

Exchange business is expected to have remained strong in the to-be-reported quarter. Sales pipeline continues to be solid, especially in the mid-market and also, memberships have increased. The Zacks Consensus Estimate for exchange solutions revenues is pegged at $192 million, up 7.3%, sequentially.

Operational Improvement Program and cost synergies from the company’s merger are likely to have benefited margins. However, costs incurred due to forex hedging program could limit the upside. The company expects approximately $10 million of expense associated with currency hedging programs in the fourth quarter. Nonetheless, the program is estimated to result in $95 million in costs savings aiding margin expansion in the process. Additionally, the company estimates merger-related cost savings guidance of $30 million in 2017.

Management expects integration expense to total $240 million for 2017.

Nonetheless, share buybacks have probably boosted the bottom line.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $2.11 per share, reflecting a 12.2% year-over-year rise.

Willis Towers projects adjusted earnings per share between $8.36 and $8.51 in 2017. The company predicts constant currency revenue growth of about 3% in 2017. Adjusted EBITDA margin is forecast in the band of 23-24%.

Willis Towers anticipates low single-digit constant currency commissions and fees growth for Human Capital and Benefits plus Corporate Risk and Broking segments. Commissions and fees at Investment, Risk and Reinsurance segment is estimated to rise between low and mid-single-digit. Whereas commissions and fees at Benefits, Delivery and Administration segment is projected to increase 10%.

What Our Quantitative Model Predicts

Our proven model does not conclusively show that Willis Towers is likely to beat estimates this quarter. This is because a stock needs to have the right combination of the two main ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for an earnings beat. But that is not the case here as elaborated below.

Zacks ESP: Willis Towers has an Earnings ESP of +0.63%. This is because the Most Accurate estimate of $2.12 is higher than the Zacks Consensus Estimate of $2.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

 

Zacks Rank: Willis Towers carries a Zacks Rank #5 (Strong Sell), which lowers the predictive power of ESP. Accordingly, we caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements to exceed estimates this time around are as follows:

CNA Financial Corporation (CNA - Free Report) is set to report fourth-quarter earnings on Feb 12. The stock has an Earnings ESP of +2.75% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNO Financial Group, Inc. (CNO - Free Report) has an Earnings ESP of +1.61% and a Zacks Rank #2. The company is scheduled to announce fourth-quarter earnings on Feb 13.

Sun Life Financial Inc. (SLF - Free Report) has an Earnings ESP of +0.71% and a Zacks Rank #3. The company is slated to release fourth-quarter earnings on Feb 14.

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