Will Aflac (AFL) Maintain its Beat Streak in Q3 Earnings?

Aflac Inc. AFL is slated to report third-quarter 2020 results on Jul 27, after market close. The company delivered an earnings surprise of 24.3% in the last reported quarter.

Let’s see how things have shaped up for this announcement.

In Japan, total sales are likely to have declined from the impact of ramped-down activity due to COVID-19 and a year-over-year comparison as Japan Post delivered an impressive performance in 2019. Also, the company's face-to-face sales might have posed a challenge in the third quarter.

Notably, it continues to actively generate business with focus on direct mail and calling campaigns to its existing and prospective customers. In addition, it is promoting digital and web-based sales to the target groups.

Despite the aforementioned efforts, overall sales are likely to have dwindled as both JPI and JPC (collectively accounting for approximately 25% of Aflac Japan’s third-sector sales in 2019), each being an affiliate of Japan Post Holdings, were found guilty of conducting business malpractices and were put on a three-month suspension (starting Dec 27, 2019) from selling insurance products.

Consequently, management believes that the sales of Aflac Japan cancer insurance through JPC and JPI are unlikely to return to the 2018-levels in the near term. For 2020, the company expects a decline in earned premiums within the 0.7% range in the third sector and first-sector protection products. The third-quarter earnings figures from Japan are thus expected to have remained subdued.

The company is also expected to have borne COVID-19-related claims. Further, it is likely to have incurred expenses for going paperless in its policyholder services operation.

Further, the company’s U.S. segment, which relies heavily on face-to-face agent-client interaction is likely to have been hit hard by the restrictions imposed on physical interactions. Management had earlier anticipated that a combination of reduced sales and persistency is likely to have weighed on the segment revenues during the second half of 2020.

Additionally, the benign interest rate environment is expected to have been a headwind to net investment income. In terms of the company’s alternative investment portfolio consisting of the private equity and real-estate equity, it might have experienced lower returns in the second quarter.
Moreover, the company is expected to have incurred costs in its U.S. dollar hedging.  

Earnings & Revenue Expectations    

The Zacks Consensus Estimate for Aflac’s third-quarter earnings of $1.12 per share implies a 3.45% dip from the prior-year reported number. Likewise, the consensus estimate for sales of $5.48 billion suggests a 1.04% slip from the year-ago reported figure.

Earnings Surprise History

The company boasts a stellar earnings surprise track. Its bottom line surpassed estimates in all the trailing four quarters, the average being 10.92%. This is depicted in the chart below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote

Here is what our quantitative model predicts:

Our proven model predicts a beat for Aflac this earnings season. The combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — increases the odds of a positive earnings surprise.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Aflac has an Earnings ESP of +3.46%.

Zacks Rank: Aflac currently carries a Zacks Rank #3.

Other Stocks That Warrant a Look

Some other insurance stocks worth considering from the same space with the right combination of elements to also beat on earnings this time around are:

Arch Capital Group ACGL has an Earnings ESP of +5.33% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Watford Holdings WTRE has an Earnings ESP of +70.13% and is Zacks #3 Ranked.

CNO Financial CNO has an Earnings ESP of +2.52% and a Zacks Rank #2.

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