On Dec 29, 2015, we issued an updated research report on Aflac Inc. AFL.
Aflac boasts a strong brand name and solid business model that continue to support earnings improvement faster than the other life and health insurers. Notably, the company is one of the prime insurers in Japan in terms of individual policies in force.
The company’s third-sector cancer and medical product sales are not only generating steady revenues, but are also expected to retain the momentum in spite of continued cost pressure on Japan’s healthcare system. Going ahead, third-sector sales are projected to grow by about 7–10% in full-year 2015, while some tapering is expected in the fourth quarter due to difficult comps.
Aflac has been able to maintain a strong balance sheet, with minimized risk exposure and a strong solvency ratio. These have helped the insurer to engage in effective capital deployment, ensuring shareholders wealth maximization. Aflac has been increasing its dividend over the past 32 years. Moreover, the insurer targets $1.3 billion worth share buybacks in 2015.
Nonetheless, a weak yen/dollar exchange rate, a low interest rate environment, intense competition, and a challenging economic and regulatory environment in Japan are causes of concern.
With respect to quarterly results, Aflac’s third-quarter earnings surpassed the Zacks Consensus Estimate and improved year over year on lower expenses. Earnings also surpassed the company’s own guidance of $1.40–$1.43. Notably, Aflac has been achieving its earnings target for the past 25 years.
Aflac's consistent operating results, strong balance sheet, solid business model and significant presence in Japan will drive long-term growth. The expected long-term earning growth is currently pegged at 8.9%.
Aflac presently carries a Zacks Rank #3 (Hold). Some better-ranked insurers are Amerisafe, Inc. AMSF, Assured Guaranty Ltd. AGO and FBL Financial Group Inc. FFG. Each of these stocks carries a Zacks Rank #2 (Buy).
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