Here's Why You Should Add Aflac (AFL) Stock To Portfolio Now
Zacks Investment Research | May 26, 2017 02:51AM ET
Aflac Inc. (NYSE:AFL) boasts an excellent franchise and strong market position in supplemental health insurance in both Japan and the U.S. Aflac U.S. continues to perform strongly as evident by increasing revenues since 2012.
The company has also achieved an increase in new annualized premium sales from $1.2 billion in 2005 to $1.5 billion in 2015. Though new annualized premiums sales declined 5.9% year over year to $113.7 billion in 2016, total revenue of $22.6 billion increased 8.1%.
Year to date, shares of the company have gained 6%, outperforming the 4.1% gain by the Zacks categorized Insurance Accident and Health industry.
Aflac is on track with its conversion in Japan from branch to a subsidiary. This conversion will enhance Aflac's flexibility by de-stacking the branch and converting it to an indirect subsidiary. It will remove the US RBC capital volatility from foreign exchange rate movements as well as Japan sovereign debt concentration risks.
The company has undertaken a change in product mix by emphasizing the sale of third sector products and pare down the sale of first sector products (which carry greater exposure to interest rate risk) to tackle the low interest rate headwind in its Japan business. It also recently made modifications to some of its third sector products to drive sales. Management expects long-term compound annual growth rate in third sector in the range of 4% to 6%.
Aflac continues to maintain strong risk-adjusted capital at its operating subsidiaries are supported by consistent earnings and good liquidity. The company has been buying back shares regularly. It has also increased its dividend for 34 consecutive years, thereby boosting its shareholders’ returns and confidence in it.
The company continues to anticipate share repurchase in the range of $1.3 million to $1.5 billion in 2017 with the majority taking place in the first half of the year. The company reaffirmed its guidance of deploying $2 billion to $2.2 billion to its shareholders in 2017. Aflac ended the quarter with $1.7 billion of excess liquidity. Leverage remains at the low end of its policy range of 20% to 25%.
The stock currently has a trailing 12-month P/E ratio of 11.09. This level compares favorably with 11.36 for the Zacks categorized Insurance Accident and Health industry. It also compares pretty favorably with the broader market, as the P/E for the S&P 500 is at 21.59.
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The stock’s valuation looks a cheap when compared with its sub sector as well as with the broader market.
Aflac carries a Zacks Rank #2 (Buy). Other stocks with the same rank as Aflac are Prudential Financial Inc. (NYSE:PRU) , Old Republic International Corp. (NYSE:ORI) and Employers Holdings Inc. (NYSE:EIG) .You can see .
Prudential (LON:PRU) surpassed earnings estimates last quarter by 5.7%. It has also witnessed an upward revision in earnings estimates over the past 60 days.
Old Republic surpassed earnings estimates in two of the last four quarters with an average positive surprise of 11.4%.
Employers Holdings surpassed earnings estimates in three of the last four quarters with an average positive surprise of 19.9%.
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