Key Predictions for Q3 Earnings Reports of AFL, UNM, AMSF

The third-quarter earnings season is gaining pace with 17.4% members of the elite S&P 500 Index having reported solid numbers so far. The proportion of positive surprises is above average this quarter. Also, the estimate revision trend for the next quarter has been mostly favorable as Q4 estimates have gone up in the past couple of weeks.

As of Oct 20, 2017, 87 S&P 500 members, accounting for 24.7% of the index’s total market capitalization, reported results, according to the latest Earnings Preview.

Total earnings of these were up 9.4% from the year-ago quarter on a 7.3% improvement in revenues. The beat ratio was 71.3% for earnings and 70.1% for revenues.

Per the report, total earnings of S&P 500 companies for Q3 are expected to grow 2.6% year over year on 5% higher revenues.

Insurance industry, an integral part of the Finance sector (one of the 16 Zacks sectors), will witness soft results in the third quarter. Soft performance from the insurance industry will be a drag on the Finance sector. Per our report, earnings of the Finance sector will decline 1.5% though revenues will increase 1.1%.

The third quarter witnessed a slew of catastrophes, which will weigh on underwriting profitability as well as the bottom line of insurers. Nevertheless, an aging population and growing unemployment are likely to drive demand for insurance products.

Prudent underwriting practices and capital reserve piled up on a benign catastrophe environment in recent years will likely provide strong support to overall earnings.

Also, higher rates should offer some respite to life insurers, which suffered spread compression on products like fixed annuities and universal life due to continued low rates. Annuity sales should have also benefited from higher rates. However, life insurers have considerably lowered their exposure to interest-sensitive product lines.

With more than 700 companies (180 S&P 500 members) set to report their results this week, let’s find out where the following insurers stand before their release of quarterly numbers on Oct 25.

Unum Group UNM is expected to witness improved operating income at Unum U.S. and Colonial Life segments, driven by higher premiums and favorable risk results. Sales at both the segments will likely improve, thus fueling the company’s total premiums.

The Zacks Consensus Estimate for earnings is pegged at $1.04 per share on $2.8 billion revenues. While the bottom line reflects a 4.9% increase, the top line translates into a 2.3% increase, both on a year-over-year basis.
Unum Group currently has a Zacks Rank #2 (Buy).

However, its Earnings ESP of -0.51% makes surprise prediction difficult. (Read more: Will Soft Unum U.K. Drag Unum Group's Q3 Earnings?).

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

Unum Group Price and EPS Surprise

Unum Group Price and EPS Surprise | Unum Group Quote

Aflac Inc.’s AFL results are expected to benefit from increased revenues from its U.S. segment. This unit has been performing strongly as evident by increasing revenues since 2010, a trend that continued through the first half of 2017. The Zacks Consensus Estimate for revenues from this segment is $1.6 billion, which translates into year-over-year growth of 6.7%.

Aflac’s top line remains sufficiently exposed to a challenging operating environment, primarily in Japan. The low interest rate environment has led the company to deemphasize sales of first-sector (life insurance) products in Japan. The Zacks Consensus Estimate for revenues from this segment is pegged at $3.8 billion, which hints at a decline of 7.9% year over year.  (Read more Will Strong U.S. Business Aid Aflac's Q3 Earnings?).

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote

Amerisafe Inc. AMSF is a specialty provider of workers' compensation insurance focused on small to mid-sized employers engaged in hazardous industries, principally construction, trucking, logging, agriculture, oil and gas, maritime and sawmills.

Last quarter, Amerisafe delivered a positive earnings surprise of 13.9%. The company delivered an average negative earnings surprise of 0.7% in the trailing four quarters. For the quarter to be reported, the Zacks Consensus Estimate is pegged at 77 cents per share, which points to a year-over-year decline of 17.6%. The company has an Earnings ESP of +3.04% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMERISAFE, Inc. Price and EPS Surprise

AMERISAFE, Inc. Price and EPS Surprise | AMERISAFE, Inc. Quote

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