On Nov 27, 2015, we issued an updated research report on Aflac Inc. AFL.
Aflac is a leading provider of individual guaranteed-renewable health and accident insurance in Japan and the U.S. About 75% of the company's profits come from Japan, where the company is one of the largest insurers.
In its Life Insurance segment, Aflac maintains a diversified business mix with no single product constituting more than 23% of sales. And since 73% of sales come with no long-term guarantees, the company is well protected from paying out undue liability.
In its Retirement Plan Business, the company is well positioned for the future given a steady growth in deposits at a CAGR of 9% from 2009–2014. Moreover, the company has aligned itself with faster growth markets such as Small and Mid Corporate 401 (k), Mid-Large Government 457 and Mid-Large Healthcare 403 (b).
Aflac also derives a high-quality income stream from its Annuities business. Earnings from this line of business have grown at a CAGR of 23% from 2009 to 2014, and the company continues to tilt VA sales toward products without guaranteed living benefits.
Aflac has maintained strong capital levels and this is evident from the $2 billion in capital generated from 2009–2014. Consistent capital generation has also enabled it to buy back shares and increase dividend payouts at regular intervals to boost shareholder’s wealth and confidence in the company.
However, the persistently weak yen/dollar exchange rate and a low interest rate environment, stiff competition, and a challenging economic and regulatory environment in Japan are some of the headwinds.
During the most recently reported quarter, the company’s operating earnings per share of $1.56 beat the Zacks Consensus Estimate of $1.48 and improved 3.3% year over year. Earnings also surpassed the company’s own guidance range of $1.40–$1.43.
Aflac presently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in this space are Amerisafe, Inc. AMSF, The Chubb Corp. CB and The Travelers Companies, Inc. TRV. Each of these stocks sports the same Zacks Rank as Aflac.
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