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Can Higher Premiums Drive Torchmark's (TMK) Q2 Earnings?


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We expect Torchmark Corporation TMK to surpass expectations in second-quarter 2018 results after the market closes on Jul 25. Last reported quarter, the company delivered a positive earnings surprise of 2.05%.

Why a Likely Positive Surprise?

Our proven model clearly shows that Torchmark has the right combination of the following two key ingredients to beat estimates this earnings season.

Earnings ESP : Torchmark has an Earnings ESP of +0.34%. This is because the Most Accurate Estimate is pegged at $1.50, higher than the Zacks Consensus Estimate of $1.49. The positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Torchmark Corporation Price and EPS Surprise

Torchmark Corporation Price and EPS Surprise | Torchmark Corporation Quote

Zacks Rank : Torchmark carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 along with a positive Earnings ESP have significantly higher chances of an earnings beat.

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.  

Factors Driving the Better-Than-Expected Earnings

Torchmark has likely witnessed a noticeable improvement in premiums at its Life Insurance segment owing to a better-than-expected performance across American Income Agency, Global Life Direct Response and LNL Agency. The Zacks Consensus Estimate for premiums at the Life Insurance business for the soon-to-be-reported quarter is pegged at $594 million, representing a year-over-year increase of 3.5%.

Further, the life insurer is expected to have displayed premium growth at its Health segment with the consensus mark pegged at $251 million, reflecting a 3.3% rise year over year. As a result, Torchmark's probable total premium growth is attributable to a favorable performance at both its Life Insurance and Health segments. The Zacks Consensus Estimate for the same stands at $845 million, denoting an improvement of 3.4% on a year-over-year basis.

Moreover, higher number of agent count has likely driven an upside in net sales at American Income Agency, the largest contributor to life premium and net sales plus Torchmark's most important distribution channel.

On the back of an improving interest rate environment (currently in the range of 1.75-2%) and higher new money rates, the company is anticipated to have reported higher excess investment income in the yet-to-be-reported quarter. Notably, on a per share basis, the life insurer expects excess investment income to increase 6% in 2018. The Zacks Consensus Estimate for the metric is pegged at $218 million, translating into a 2.3% year-over-year gain.

Riding on the strength of a possible improvement in premiums as well as investment results, the company has likely delivered top-line growth in the yet-to-be-reported quarter. The Zacks Consensus Estimate for the company's revenues is pegged at $1.1 billion, representing an increase of 3.3% on a year-over-year basis.

Further, lower tax incidence and continued share buybacks are likely to have cushioned the life insurer's bottom line in the second quarter. The consensus estimate for the metric stands at $1.49, up 25.2% year over year.

However, higher administrative expenses, resulting from an increase in pension costs, might weigh on the company's bottom line in the quarter to be reported.

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. XL 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 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 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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Torchmark Corporation (TMK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TMK , PRU , XL , AFG



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