Global multi-line insurer – American International Group Inc. (AIG) is scheduled to release third-quarter 2014 financial results after the closing bell on Nov 3.
In the last reported quarter, the company delivered a positive earnings surprise of 19.5%. Notably, AIG has maintained its earnings streak in the trailing four quarters with an average beat of 13.5%. Let us see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that AIG is likely to beat earnings as it ensures the required combination of two key components.
Zacks ESP: AIG has a positive Zacks ESP. That is because Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate of $1.09 per share and the Zacks Consensus Estimate of $1.08, is +0.93%.
Zacks Rank: AIG has a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings.
Sell-rated stocks (#4 and 5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions momentum.
The combination of AIG’s Zacks Rank #2 and +0.93% ESP makes us confident of an earnings beat this season.
Factors Signalling Upbeat Earnings
The streamlining of its operations and abundant gains from ILFC in the recent past quarters have not only helped AIG focus on its core operations but also aided improvement in financial leverage, thereby making the balance sheet leaner as well. Notably, debt-to-capital ratio improved to 16.4% at Jun 2014-end from the highs of 20.5% in 2012 and 31% in 2010.
Moreover, excess liquidity in Direct Investment Book (DIB) and flexible credit facilities have strengthened AIG’s capital, thereby leading to accelerated capital deployment as well. We expect these factors to support financials in the third quarter as well, and drive long-term growth.
Additionally, the core property and casualty as well as the life and retirement businesses are likely to benefit from the large scale of operations, new product launches as well as disciplined claims and expense management. Positive capital markets trends for most of the past quarter should also boost net flows and credit spreads.
While inadequate pricing improvement, catastrophe loss, stiff competition, low interest rates, currency fluctuations and rising loss trends raise operating risks, we believe that the company’s capital strength has the potential to absorb major risks and generate incremental growth in the third quarter and beyond.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Heartland Payment Systems Inc. (HPY) has Earnings ESP of +1.7% and a Zacks Rank #1 (Strong Buy).
Kemper Corp. (KMPR) has Earnings ESP of +13.33% and a Zacks Rank #2.
Loews Corp. (L) has Earnings ESP of +10.45% and a Zacks Rank #3 (Hold).
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