Supplemental health and life insurer Aflac Inc. AFL is scheduled to release its first-quarter 2015 financial results after the closing bell on Apr 28, 2015.
In the last reported quarter, the company delivered nil earnings surprise, with the four-quarter trailing average beat of 4.1%. Let us see how things are shaping up for this announcement.
Earnings Whispers
Our proven model shows that Aflac is unlikely to beat earnings as it lacks the required combination of two key components.
Zacks ESP: Aflac’s Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate Estimate, of $1.55 per share is at par with the Zacks Consensus Estimate.
Zacks Rank: Aflac’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need a positive ESP to be confident of an earnings beat. Hence, the combination of Zacks Rank #3 and 0.00% ESP deters us from making a conclusive projection.
Note that stocks with Zacks Ranks #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings.
Conversely, Sell-rated stocks (#4 and #5) should never be considered going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Major Factors at Play
The persistently weakening yen/dollar exchange rate and low interest rate environment, stiff competition and a challenging economic and regulatory environment in Japan restricted growth, particularly, within premium income and bank channels sales. Notably, the yen/dollar exchange rate weakened 18.2% year over year in 2013 and 7.5% in 2014, implying deterioration in the upcoming quarters as well.
We also remain cautious of the tepid earnings guidance and investment returns. These factors have further impelled management to tighten its earnings growth guidance of 2–7% growth in 2015.
Nonetheless, Aflac’s product expertise, healthy capital ratios, dividend hike, accelerated buybacks and better-than-expected profit repatriation in 2014 keeps market sentiment stable. The company’s strong brand name and solid business model that facilitated a shift toward newer products (as New Cancer DAYS product boosted third-sector sales in Japan in 2014) also augur long-term growth.
Going ahead, third-sector sales are projected to grow by about 15% in the first nine months of 2015, while some tapering is expected in fourth-quarter 2015 due to difficult comps.
Additionally, Aflac has expanded its network base from about 3,000 postal outlets at Sep 2014-end to 10,000 post offices in Oct 2014 through it strategic alliance with Japan Post, and eventually targets 20,000 locations by first-quarter 2016. Given the pros and cons, overall Aflac is still expected to have few jerky quarters before it witnesses a positive growth momentum and rebounds beyond 2015.
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:
AXIS Capital Holdings Ltd. AXS has Earnings ESP of +13.6% and a Zacks Rank #1.
The Allstate Corp. ALL has Earnings ESP of +3.6% and a Zacks Rank #3.
Assurant Inc. AIZ has Earnings ESP of +2.7% and a Zacks Rank #3.
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