On Dec 2, Aflac Inc. AFL touched a 52-week high of $66.53. We believe this rally in the stock was propelled by strong results, a dividend increase, continued favorable results and impressive performance by its different segments.
Investors seemed impressed with Aflac’s leading position as a provider of individual guaranteed-renewable health and accident insurance both in Japan and the U.S. About 75% of the company's profits come from Japan, where the company is among the largest insurers. The company also revised up its Japan sales growth target for third sector products to 10% to 13% from 7% to 10%.
In its Life insurance segment, Aflac maintains a diversified business mix with no single product constituting more than 23% of sales. Moreover, 73% of sales have no long-term guarantees protecting the company from long-term claims. This strategy by the company is viewed favorably by investors.
Investors also acknowledge Aflac’s retirement plan business, which is well positioned for future growth given steady growth in deposits at a CAGR of 9% from 2009–2014. Moreover, they favorably view the company’s efforts to align itself with faster growth markets such as Small and Mid Corporate 401 (k), Mid-Large Government 457 and Mid-Large Healthcare 403(b), which bode well for the segment’s long-term growth.
Aflac’s Annuities business, from which it derives a high-quality income stream, is also an investor favorite. Earnings from this line of business have grown at a CAGR of 23% from 2009 to 2014, and the company continues to tilt Variable Annuity sales toward products without guaranteed living benefits.
During the last reported third 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.
Investors also remain impressed with the company’s ability to maintain strong capital levels, as evident from $2 billion of capital generated from 2009–2014. Consistent capital generation has also enabled it to buy back shares and institute an increase in dividend at regular intervals which has boosted shareholder’s wealth and their confidence in the company.
Aflac presently carries a Zacks Rank #2 (Buy). Some other equally placed stocks from the insurance space are Amerisafe, Inc. AMSF, The Chubb Corp. CB and The Travelers Companies, Inc. TRV.
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