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Arthur J. Gallagher (AJG) Q2 Earnings: Is a Beat in Store?

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Arthur J. Gallagher & Co. (AJG - Free Report) is slated to report second-quarter 2018 results on Jul 26 after the market closes. Last reported quarter, the company delivered a positive earnings surprise of 0.66%.

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

Arthur J. Gallagher is likely to report top-line growth in the soon-to-be-reported quarter, mainly driven by organic sales as well as strategic mergers and acquisitions. Also, expected revenue improvement across the segments of Brokerage, Risk Management and Corporate is likely to contribute to this upside. The Zacks Consensus Estimate for revenues is also pegged at $1.6 billion, representing a rise of 1.1% from the prior-year quarter.

Additionally, we anticipate the company to have displayed improved organic growth at its Brokerage segment in the period to be reported, driven by strong growth across all the divisions. To top it all, the company estimates the revenues from this segment to be benefited from a favorable forex impact. In fact, the Zacks Consensus Estimate for this metric is pegged at $979 million, representing an 11.4% rise from the year-ago quarter.

Owing to the gradual improvement in interest rates, the company is likely to witness better investment results with the consensus mark pegged at $15.5 million, reflecting a rise of 27% on a year-over-year basis.

When it comes to Risk Management segment, the company might have experienced organic growth and a better margin in the to-be-reported quarter, mainly driven by a diversified product portfolio coupled with a few specialty mergers already in the company’s pipeline.

Also, we expect employee benefit consulting operations to have registered organic growth on new business opportunities.

However, the insurance broker is likely to incur a noticeable increase in expenses, primarily due to higher compensation and operating expenses. The downside can limit the operating margin expansion, hurting the company’s overall performance in turn.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at 62 cents per share, reflecting a considerable decline of 39.8% from the prior-year period.

What Our Quantitative Model States

Our proven model shows that Arthur J. Gallagher is likely to beat on earnings this to-be-reported quarter. This is because the stock has the perfect combination of a positive Earnings ESP as well as a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Arthur J. Gallagher has an Earnings ESP of +0.63%. This is because the Most Accurate Estimate is pegged at 63 cents, higher than the Zacks Consensus Estimate of 62 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Arthur J. Gallagher carries a Zacks Rank #3, which increases the predictive power of ESP.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

XL Group Ltd. is set to report second-quarter earnings on Jul 31 and has an Earnings ESP of +6.37%. The company is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

Prudential Financial, Inc. (PRU - Free Report) has an Earnings ESP of +0.09% and a Zacks Rank of 3. The company is set to announce second-quarter earnings on Aug 1.

American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +1.68% and a Zacks Rank of 1. The company is set to announce second-quarter earnings on Aug 1.

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