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Can Aflac's (AFL) Q4 Earnings Beat Estimates on Lower Expenses?

Aflac Incorporated AFL is set to continue its earnings beat streak in the fourth quarter of 2022, the results of which are expected to be released on Feb 1, after the closing bell.

In the last reported quarter, the leading insurance provider reported adjusted earnings per share of $1.23, beating the Zacks Consensus Estimate by a penny, due to reduced benefits and expenses, partly offset by a variable investment income loss from alternative investments and a weaker contribution to revenues from its Japan and U.S. businesses.

Now, let us see how things have shaped up prior to the fourth-quarter earnings announcement.

The Trend in Estimate Revision

The Zacks Consensus Estimate for fourth-quarter earnings per share of $1.21 has witnessed two upward estimate revisions in the past 30 days against no movement in the opposite direction. The estimated figure, however, suggests a decrease of 5.5% from the prior-year reported number.

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Our estimate for fourth-quarter earnings of $1.22 per share suggests a 4.9% year-over-year decline. Aflac beat the consensus estimate in all the prior four quarters, with the average being 4.8%. This is depicted in the graph below:

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise
Aflac Incorporated Price and EPS Surprise

Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote

Both the Zacks Consensus Estimate and our estimate for fourth-quarter revenues of $4.5 billion indicate a 17.4% decrease from the year-ago reported figure.

What the Quantitative Model Suggests

Our proven model predicts a likely earnings beat for Aflac this time around as well. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Earnings ESP for the company is currently +1.29%. The Most Accurate Estimate is pegged at $1.23 per share, higher than the Zacks Consensus Estimate of $1.21. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aflac currently holds a Zacks Rank #2.

Factors to Note

AFL’s U.S. operations in the fourth quarter are likely to have benefited from the Fed interest rate hikes, but Japan’s operations are likely to have been affected by adversities on sales. The Zacks Consensus Estimate for net investment income of $824 indicates a 9.5% year-over-year decrease while our estimate suggests a 13% decline. This is likely to have been partially offset by improved returns from alternative investments.

The Zacks Consensus Estimate for total net earned premiums is pegged at $3,544 million, signaling a decline of 16.5% from a year ago while our estimate suggests a 20.2% year-over-year decline in the fourth quarter. This is likely to have resulted in a year-over-year decrease in AFL’s bottom line.

The consensus mark for pre-tax income in Aflac Japan is pegged at $705 million, signaling a decrease of 20.5% from the year-ago period. We expect the metric to fall 25.4% year over year in the fourth quarter.

However, the Zacks Consensus Estimate for pre-tax income in Aflac U.S. is pegged at $285 million, indicating a 9.2% increase from a year ago due to lower costs. This is likely to have positioned the company for an earnings beat in the fourth quarter.

Thanks to Aflac’s multiple cost-curbing efforts, expenses are likely to have declined in the quarter under review. A reduction in operations is expected to have played part in lowering costs, partially offsetting the fall in profit levels. Our estimate for total benefits and expenses suggests a 20% year-over-year decrease.

The company is expected to have made substantial investments in core technology platforms or digital capabilities. Among these platforms, AFL remains steadfast in upgrading its dental and vision platforms to manage higher volumes. The investments are aimed at boosting operational efficiencies and triggering accretive growth in earned premiums in the long run.

Other Stocks That Warrant a Look

Here are some other companies from the broader finance space that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

Ares Capital Corporation ARCC has an Earnings ESP of +9.58% and is a Zacks #1 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Ares Capital’s bottom line for the to-be-reported quarter is pegged at 56 cents per share, implying a 7.7% improvement from the year-ago figure. ARCC beat earnings estimates in two of the past four quarters, met once and missed on the other occasion, with an average surprise of 3%.

Aon plc AON has an Earnings ESP of +1.52% and a Zacks Rank of 2.

The Zacks Consensus Estimate for AON’s bottom line for the to-be-reported quarter is pegged at $3.67 per share, which witnessed two upward estimate revisions in the past 30 days against one downward movement. AON beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2.8%.

The Hartford Financial Services Group, Inc. HIG has an Earnings ESP of +0.18% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Hartford Financial’s bottom line for the to-be-reported quarter is pegged at $1.86 per share, which improved 1.1% in the past 60 days. HIG beat earnings estimates in all the past four quarters, with an average surprise of 23.1%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report

Aflac Incorporated (AFL) : Free Stock Analysis Report

Ares Capital Corporation (ARCC) : Free Stock Analysis Report

Aon plc (AON) : Free Stock Analysis Report

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