Arthur J. Gallagher & Co. (NYSE:AJG) is slated to report fourth-quarter 2018 results on Jan 31, after the market closes. In the last reported quarter, the company delivered a positive earnings surprise of 1.30%.
Why a Likely Positive Surprise?
Our proven model clearly shows that Arthur J. Gallagher has the right combination of the following two key ingredients to beat estimates this earnings season.
Earnings ESP: Arthur J. Gallagher has an Earnings ESP of +3.42%. This is because the Most Accurate Estimate is pegged at 53 cents, higher than the Zacks Consensus Estimate of 51 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Arthur J. Gallagher has a Zacks Rank #3 (Hold), which increases the predictive power of ESP as stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 along with a positive Earnings ESP have significantly higher chances of an earnings beat.
Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Factors Driving the Better-Than-Expected Earnings
Arthur J. Gallagher has possibly displayed top-line growth in the soon-to-be-reported quarter, mainly driven by organic sales as well as strategic mergers and acquisitions. Also, a probable revenue improvement, primarily across the segments of Brokerage and Risk Management, is likely to contribute to this anticipated upside. The Zacks Consensus Estimate for revenues is pegged at $1.6 billion, representing a 0.6% rise from the prior-year quarter.
The company expects stronger organic growth at its Brokerage segment in the period to be reported, aided by strong growth across all divisions. An expected increase in fees, commissions and supplemental plus contingent revenues has likely supported this uptrend. In fact, the Zacks Consensus Estimate for this segment’s revenues stand at $1 billion, reflecting a 0.3% increase from the year-ago quarter.
With respect to Risk Management segment, the company might have experienced organic growth and a better margin in the to-be-reported quarter, mainly boosted by a diversified product portfolio coupled with a few specialty mergers already in the company’s pipeline. During the fourth quarter, organic growth is projected in the 5-7% range while margins are estimated to be between 17% than 18%. The Zacks Consensus Estimate for the revenues of this segment is predicted at $210 million, indicating 6.6% growth from the year-earlier period.
Riding on the strength of rising interest rates, investment results likely have improved in the soon-to-be reported quarter.
Also, we assume employee benefit consulting operations to have registered organic growth on new business opportunities.
However, the insurance broker is likely to incur a noticeable increase in expenses, primarily due to higher compensation and operating expenses.
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 51 cents per share, depicting a noticeable decline of 37.8% from the comparable period last year.
Other Stocks to Consider
Some stocks worth considering from the insurance industry with the perfect mix of elements to also surpass estimates this time around are as follows:
Cigna Corporation (NYSE:CI) is set to report fourth-quarter earnings on Feb 1 and has an Earnings ESP of +0.28%. The company has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Willis Towers Watson Public Limited Company (NASDAQ:WLTW) has an Earnings ESP of +0.63% and a Zacks Rank of 3. The company is slated to announce fourth-quarter earnings on Feb 7.
Radian Group Inc. (NYSE:RDN) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is anticipated to release fourth-quarter earnings on Feb 8.
Zacks' Top 10 Stocks for 2019
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Radian Group Inc. (RDN): Get Free Report
Willis Towers Watson Public Limited Company (WLTW): Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG): Free Stock Analysis Report
Cigna Corporation (CI): Get Free Report
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