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Aflac (AFL) to Report Q3 Earnings: Will It Beat Estimates?

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Aflac Inc. (AFL - Free Report) is scheduled to announce third-quarter 2018 results on Oct 24, after the closing bell. Its quarterly revenues and earnings are expected to improve year over year.

The company is expected to benefit from a healthy sales pipeline in its U.S. segment, strong sales growth in third sector products in Japan and share buyback.

Factors Affecting Q3 Results

The yen-to-dollar exchange rate average for the July-September quarter was 113.7. The company in the second-earnings release said that if the yen averages 110 to 115 to the dollar, then for the third quarter, adjusted earnings would be approximately between 87 cents and $1.02 per diluted share.

Aflac’s third-quarter results are expected to benefit from increased sales from its U.S. segment. This unit has been performing strongly as evident from increasing revenues since 2010, a trend that continued through the first half of 2018.

We expect to see strong financial performance and continued strength in the profitability of Aflac U.S. led by the ongoing investment in this business, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities.

We also expect to see new sales increase in the quarter driven by overall growth of broker distribution and improved growth in the company’s career sales distribution. Broker distribution is expected to drive sales in the mid-case market, an area of focus for the company in 2018. Career sales distribution should drive sales in the small-case market.

Aflac’s Japan business is also gaining ground after suffering (till the recent past) from near zero interest rates in the region. The company’s strategy to work upon a change in business mix through efforts to deemphasize sales of first-sector (life insurance) products in Japan and promote sales of third-sector products that are less interest sensitive, have actually paid off.

In the second quarter, the company achieved third sector sales increase of 16%, which surpassed the company’s own expectations. The cancer insurance product launched in the second quarter was the main driver of sales. The company’s vast agent network in Japan is also a major catalyst in driving sales. We expect sales growth to continue in the third quarter.

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

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 7.17%. This is depicted in the chart below:

Aflac Inc. Price and Consensus

Here is what our quantitative model predicts:

Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.

Earnings ESP: Aflac has an Earning ESP of -0.10%. 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 #4 (Sell). We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth Considering

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

Everest Re Group, Ltd. (RE - Free Report) is set to report third-quarter earnings on Oct 29 and has an Earnings ESP of +15.2%. The company is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNA Fianancial Corp. (CNA - Free Report) has an Earnings ESP of +4.19% and is a #2 Ranked player. The company is set to release third-quarter earnings on Nov 5.

Lincoln National Corp. (LNC - Free Report) has an Earnings ESP of +0.26% and is a #2 Ranked player. The company is set to announce third-quarter earnings on Nov 1.

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