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Will Lower Revenues, Share Buyback Hit AIG Q1 Earnings?


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American International Group Inc. 's AIG first-quarter 2018 results scheduled on May 2, are expected to witness flat to a slight decline in revenues due to its ongoing efforts in managing the overall business portfolio via reinsurance and divestitures.

The company's Life Insurance business should show progress, driven by a new modern administrative platform, distribution simplification efforts and narrowed product focus in the United States that should support strong top-line growth. Premiums and deposits are expected to increase led by strong growth in both term and universal life insurance sales.

In its Institutional markets, results should benefit from its strong market positioning in pension risk transfers. The company's strong capabilities in the pension risk transfer business as well as its disciplined pricing and strong balance sheet positions it well to selectively participate in this growing market.

In the company's General Insurance business, premiums are expected to decline due to the company's remediation of underperforming lines and divestitures.

The company expects the adjusted effective tax rate to be approximately 21% to 22% as a result of the Tax Cuts and Jobs Act which should improve its after-tax ROE.

The company's newly appointed CEO has made a significant shift in its capital utilization strategy in a bid to turn the stock around and achieve greater profitability. Management now expects to utilize capital for possible acquisitions in international markets, boosting the company's personal and life lines segments plus investing in the domestic middle market as opposed to its hitherto usage of capital resource for share repurchases. Thus a lower amount of share buyback will somewhat be less accretive to the bottom line.

Earnings Surprise History

The company boasts an attractive earnings surprise history. It beat estimates in each of the last four reported quarters, with an average positive surprise of 9.6%. This is depicted in the chart below:

American International Group, Inc. Price and EPS Surprise

American International Group, Inc. Price and EPS Surprise | American International Group, Inc. Quote

Here is what our quantitative model predicts:

Our proven model does not conclusively show that AIG 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.

Zacks ESP: AIG has an Earning ESP of +1.78%. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

Zacks Rank: AIG carries a Zacks Rank #5 (Strong 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 to Consider

Here are some companies from the insurance sector that you may want to consider as these have the right combination of elements to beat on earnings this quarter:

American Financial Group, Inc. AFG is expected to report first-quarter 2018 earnings results on May 2. The company has an Earnings ESP of +4.46% and a Zacks Rank #2 (Buy). You can see  the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

National General Holdings Corp NGHC is expected to report first-quarter 2018 earnings results on May 7. The company has an Earnings ESP of +5.59% and a Zacks Rank #1.

American Equity Investment Life Holding Company AEL has an Earnings ESP of +5.99% and a Zacks Rank #3. The company is expected to report first-quarter earnings results on May 2.

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American Equity Investment Life Holding Company (AEL): Free Stock Analysis Report

American International Group, Inc. (AIG): Free Stock Analysis Report

American Financial Group, Inc. (AFG): Free Stock Analysis Report

National General Holdings Corp (NGHC): 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: AEL , AIG , AFG , NGHC



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