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Arthur J. Gallagher (AJG) Q3 Earnings: Rising Costs to Hurt?

Arthur J. Gallagher & Co.AJG is slated to report third-quarter 2017 results on Oct 26, after the market closes . Last quarter, the company delivered a positive earnings surprise of 0.98%. Let's see how things are shaping up for this announcement.

Factors to be Considered This Quarter

Arthur J. Gallagher is likely to witness a noticeable rise in expenses, primarily due to higher compensation and operating expenses. The increase in expenses can restrict operating margin expansion, thereby hurting the company's overall performance.

Also, with the insurance broker's string of strategic buyouts, the company has incurred 1 cent per share in integration costs in the soon-to-be-reported quarter.

Nonetheless, Arthur J. Gallagher is likely to report bottom-line growth in the third quarter, mainly owing to a strong performance by its Brokerage and Risk Management businesses as well as higher revenues. In fact, the Zacks Consensus Estimate for the third quarter of 2017 is 78 cents that represents an increase of 1.9% from the prior-year quarter.

The company expects adjusted margin at Brokerage segment to be in line with year-ago figure.

Employee benefit consulting operations are likely to have registered organic growth owing to new business opportunities.

Top-line growth likely has been fueled by organic sales as well as strategic mergers and acquisitions. To that end, the Zacks Consensus Estimate with respect to revenues for the third quarter of 2017 is $1.6 billion that represents an increase of 5.1% from the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that Arthur J. Gallagher 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP : Arthur J. Gallagher has an Earnings ESP of -1.08%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

Arthur J. Gallagher & Co. Price and EPS Surprise

Arthur J. Gallagher & Co. Price and EPS Surprise | Arthur J. Gallagher & Co. Quote

Zacks Rank : Arthur J. Gallagher carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. Combined with a negative ESP, chances of beating estimates become difficult. Therefore, we caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the insurance industry with the right combination of elements scheduled to come up with an earnings beat this quarter are as follows:

Prudential Financial PRU is set to report third-quarter earnings on Nov 1 with an Earnings ESP of +0.07% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Lincoln National Corporation LNC has an Earnings ESP of +0.05% and also holds a Zacks Rank of 2. The company is slated to report third-quarter earnings on Nov 1.

American Equity Investment Life Holding Company AEL has an Earnings ESP of +0.40% and holds a Zacks Rank of 2. The company is set to report third-quarter earnings on Nov 6.

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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.


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

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