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Can Aflac's (AFL) Q1 Earnings Beat on Lower Benefits & Expenses?

Aflac Incorporated AFL is set to continue its earnings beat streak in the first quarter of 2023. The results are scheduled to be released on Apr 26, after the closing bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for first-quarter earnings per share of $1.38 has remained stable over the past week. The estimated figure, however, suggests a decrease of 2.8% from the prior-year reported number. Our estimate for first-quarter earnings of $1.32 per share suggests a 7.2% year-over-year decline. Aflac beat the consensus estimate in all the prior four quarters, with the average being 5.9%. 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

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The Zacks Consensus Estimate for first-quarter revenues of $4.6 billion indicates a 12.8% decrease from the year-ago reported figure, whereas our estimate predicts a 14.1% decline.

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 +1.20%. The Most Accurate Estimate is pegged at $1.40 per share, higher than the Zacks Consensus Estimate of $1.38. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Before we get into what to expect in the to-be-reported quarter in detail, let’s see how the company performed in the last quarter.

Q4 Earnings Rewind

In the last reported quarter, the leading insurance provider reported adjusted earnings per share of $1.29, beating the Zacks Consensus Estimate by 6.6%, due to reduced benefits and expenses, and improved profit levels from the U.S. businesses. The positives were partially offset by lower net investment income and weaker performance in the Japan unit.

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

Factors Driving Better-Than-Expected Q1 Earnings

AFL’s U.S. operations in the first quarter are likely to have benefited from the high interest rate environment, but Japan’s operations are likely to have been affected by adversities on sales. The Zacks Consensus Estimate for net investment income of $854.5 indicates a 5.4% year-over-year decrease while our estimate suggests an 8.6% 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 $3,677.4 million, signaling a decline of 12% from a year ago, whereas our estimate suggests a 15.7% year-over-year decline in the first 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 $748.4 million, signaling a decrease of 13.2% from the year-ago period. We expect the metric to fall 18.3% year over year in the first quarter.

However, the Zacks Consensus Estimate for pre-tax income in Aflac U.S. is pegged at $332.1 million, compared with $325 million a year ago, due to lower costs. Our estimate indicates 10.8% year-over-year growth. This is likely to have positioned the company for an earnings beat in the first quarter.

Thanks to Aflac’s multiple cost-control efforts, expenses are likely to have declined in the quarter under review. A reduction in operations is expected to have played a part in lowering costs, partially offsetting the fall in profit levels. Our estimate for total benefits and expenses suggests a 16.7% year-over-year decrease.

Aflac is likely to have made substantial investments in core technology platforms or digital capabilities. Among these platforms, the company remains steadfast in upgrading the dental and vision platforms to manage higher volumes. These investments are aimed at boosting operational efficiencies and triggering accretive growth in earned premiums over 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:

Owl Rock Capital Corporation ORCC has an Earnings ESP of +0.47% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Owl Rock Capital’s bottom line for the to-be-reported quarter is pegged at 43 cents per share, implying a 38.7% jump from the year-ago figure. ORCC beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2.1%.

Aon plc AON has an Earnings ESP of +0.80% and a Zacks Rank of 3.

The Zacks Consensus Estimate for AON’s bottom line for the to-be-reported quarter is pegged at $5.26 per share, which witnessed three upward estimate revisions in the past 30 days against none in the opposite direction. AON beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2.1%.

RenaissanceRe Holdings Ltd. RNR has an Earnings ESP of +3.37% and a Zacks Rank of 3.

The Zacks Consensus Estimate for RenaissanceRe’s bottom line for the to-be-reported quarter is pegged at $7.34 per share, suggesting a 109.7% year-over-year increase. RNR beat earnings estimates in two of the past four quarters and missed on the other two occasions.

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

Aflac Incorporated (AFL) : Free Stock Analysis Report

RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report

Aon plc (AON) : Free Stock Analysis Report

Owl Rock Capital Corporation (ORCC) : Free Stock Analysis Report

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