Arthur J. Gallagher (AJG) Q1 Earnings: A Beat In The Cards?

We expect insurance broker Arthur J. Gallagher & Co. (NYSE:AJG) to beat expectations when it reports first-quarter 2017 results on Apr 27, after the market closes.

Why a Likely Positive Surprise?

Our proven model shows that Arthur J. Gallagher has the right combination of two key ingredients to beat estimates this quarter.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.56%. This is because the Most Accurate estimate of 40 cents is higher than the Zacks Consensus Estimate of 39 cents. The positive ESP is a meaningful and leading indicator of a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Arthur J. Gallagher carries a Zacks Rank #3 (Hold). Please note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating on earnings. The combination of Arthur J. Gallagher’s favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

What is Driving the Better-Than-Expected Earnings?

Arthur J. Gallagher is likely to report bottom-line growth in the to-be-reported quarter, mainly due to solid performance by both the Brokerage and Risk Management businesses. Furthermore, the insurance broker is likely to register top-line growth on the back of organic sales as well as strategic mergers and acquisitions (M&A).

Moreover, the company is likely to report organic growth in its brokerage segment. In fact, it is anticipated to deliver 3.5% organic growth in 2017.

Further, Arthur J. Gallagher’s employee benefit consulting operations are likely to have registered organic growth owing to new business opportunities. The insurance broker expects organic growth in this segment to remain flat with 2016.

However, increasing expenses, primarily due to higher compensation and operating costs, are likely to have weighed on margin expansion.

With respect to earnings trend, the company delivered positive surprises in three of the last four quarters with an average beat of 4.90%.

Other Stocks to Consider

Here are some companies from the insurance industry that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

CNA Financial Corporation (NYSE:CNA) , which is set to report first-quarter earnings on May 1, has an Earnings ESP of +10.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group, Inc. (NYSE:AFG) has an Earnings ESP of +2.19% and a Zacks Rank #3. The company is set to report first-quarter earnings on May 3.

Third Point Reinsurance Ltd. (NYSE:TPRE) has an Earnings ESP of +25.32% and a Zacks Rank #3. The company is slated to report first-quarter earnings on May 4.

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