Insurance Stock Q1 Earnings To Watch On May 9: AON, SLF, PRI

We are in the tail end of the Q1 earnings season, with 412 S&P members (85.7% of the total market cap) having reported their numbers already.

Per the latest Earnings Preview, total earnings for the companies that have reported results (as of May 5th) are up 14.2% from the year-ago period, courtesy of a 7.3% rise in revenues. Notably, 73.3% of these companies have surpassed earnings estimates, while 67.7% have exceeded top-line expectations.

So far, the Finance sector, one of the 16 Zacks-categorized sectors, has delivered a strong performance. 95.7% of the companies from this sector have revealed their quarterly results. Of them, 11.7% show earnings growth on 1.9% increase in revenues on a year-over-year basis. The beat ratio is 72.2% for the bottom line and 67.8% for the top line.

For the insurance sector, the results for the first quarter reflect effects of an increase in disposable income on the back of continued growth in the economy. Also, declining unemployment should lead to a rise in demand for insurance products.

On the other hand, interest rates — a major factor affecting the industry — have remained low since 2007. Despite the recent rate hikes by the Federal Reserve, interest rates remain at very low levels, so much so that the effect of hikes on insurers’ investment income is negligible. Also, life insurers continue to face friction, given their rate-sensitive products and investments.

Prudent underwriting practices should support earnings. However, we do not expect pricing to be strong, given the softness in the industry. Nonetheless, core business growth, geographic expansion, strategic acquisitions and effective capital deployment via share repurchase should prove beneficial for the players.

Let’s take a sneak peek into earnings of these insurance players slated for release on May 9.

Aon plc (NYSE:AON) surpassed the Zacks Consensus Estimate by 2.81% last quarter. Moreover, with respect to the surprise trend, the company beat expectations in three of the last four quarters, with an average surprise of 1.10%.

The company has an Earnings ESP of +7.81% as the Most Accurate estimate of $1.38 is higher than the Zacks Consensus Estimate of $1.28. According to our proven model, only those stocks which have both a positive ESP and a Zacks Rank #1, 2 (Buy) or 3 (Hold) have increased chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The company is unlikely to post an earnings beat as it does not have the combination of the key ingredients.

Aon’s strategic investments to strengthen underlying performance and numerous initiatives to maximize return on invested capital bode well. We expect the company to generate better operating leverage from its Risk Solutions segment. (Read more: Aon plc to Report Q1 Earnings: What's in the Cards?)

Sun Life Financial Inc. (TO:SLF) is a leading international financial services organization providing a diverse range of wealth accumulation and protection products and services to individuals and corporate customers. It has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 75 cents. Though the company has a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Last quarter, Sun Life surpassed the Zacks Consensus Estimate by 25.35%.

This time, however, the company is unlikely to come up with a beat.
With respect to the surprise trend, Sun Life surpassed expectations in three of the last four quarters, with an average positive surprise of 8.75%.

Primerica Inc. (NYSE:PRI) provides financial products and services. It assists its clients in meeting their needs for term life insurance (which it underwrites) and mutual funds, variable annuities, and other financial products, which it distributes primarily on behalf of third parties. It has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.15 per share. Though the company has a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Last quarter, Primerica posted in-line earnings. This time, however, the company is unlikely to come up with a beat.

With respect to the surprise trend, Primerica surpassed expectations in three of the last four quarters, with an average positive surprise of 5.61%.