Key Stats for AFLAC Incorporated
As if we didn’t spend enough on healthcare! Perhaps not? If so, there’s Aflac!
| Ticker | AFL |
|---|---|
| Sector | Life & Health Insurance |
| Latest price | $69.52 |
| Value | $28,371M |
| Daily vol | $116M |
| Date | 10 January 2017 |
Useful Links
- Latest news from Google Finance and Yahoo Finance
- Latest results from SEC Edgar
- Website: http://www.aflac.com
Description
Aflac Incorporated, otherwise known as American Family Life Assurance Company of Columbus, eh! And surprisingly AFLAC does over 70% of its business in Japan. Yes, the US is the minnow from a cash perspective.
It is a “top-up” insurance business. Aflac Japan's insurance products are designed to help consumers pay for medical and non-medical costs that are not reimbursed under Japan's national health insurance system. Their US products provide supplemental coverage for people who already have major medical or primary insurance coverage.
Recent financials
The strong dollar hasn’t helped recently, even if the underlying Japanese business has performed fine.
| Metric | 2015A | 2014A | 2013A | 2012A | 2011A |
|---|---|---|---|---|---|
| Revenue | $21bn | $23bn | $24bn | $25bn | $22bn |
| EPS | $5.85 | $6.50 | $6.76 | $6.11 | $4.12 |
Though a $1.3bn share buyback in 2015 did help boost earnings.
Competition
Clearly the competition to watch is in Japan!
In 1974, Aflac was granted an operating license to sell life insurance in Japan, making Aflac the second non-Japanese life insurance company to gain direct access to the Japanese insurance market. Through 1981, we faced limited competition for cancer insurance policy sales. Aflac is the largest life insurer in Japan in terms of cancer and medical policies in force. As of December 31, 2015, we exceeded 23 million individual policies in force in Japan. Aflac continued to be the number one seller of cancer insurance policies in Japan throughout 2015.
And in the US, they see themselves as having a unique offering since they sell their supplemental insurance as their core product, unlike others who regard it as an extra.
That Japanese #1 position, sure plays nicely to margins and returns! And wow are they better than US focused firms like MET.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| AFLAC Incorporated | $22,002M | 25% | 13% |
| Lincoln National Corporation | $13,385M | 15% | 8% |
| Metlife Inc | $68,593M | 7% | 5% |
| Principal Financial Group Inc | $11,766M | 15% | 12% |
| Torchmark Corporation | $3,670M | 36% | 11% |
| Unum Group | $11,013M | 14% | 10% |
Cash / Debt?
AFLAC Incorporated has $495M of net debt. That is 0.1x it's latest operating profit. Though I find it hard to judge the cash / debt levels of insurance businesses.
Wall Street thinks?
The professionals on Wall Street have a $71.54 for AFLAC Incorporated and their recommendation to clients is Hold. That implies an upside of 3% to their target.
Valuation
Now that all looks a little odd on the valuation front. 10 times forecast earnings? Is the life insurance business really that valueless compared to other financial services or the broader market?
| View Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| AFL | $28,371M | 10x | 7% | 2% | n/a |
| LNC | $15,204M | 10x | 10% | 2% | n/a |
| MET | $59,024M | 12x | 8% | 3% | n/a |
| PFG | $16,740M | 13x | 7% | 3% | 11% |
| TMK | $8,770M | 17x | 7% | 1% | n/a |
| UNM | $10,304M | 11x | 7% | 2% | 11% |
How come $TMK and some other pure life-insurance biz get valued in the high teens?
Scratching my head.
Dividends
AFLAC Incorporated is forecast to pay a dividend of $1.67 per share, compared with a forecast EPS of $6.87.
And the company has a substantial authorisation to continue buying back shares.
Catalysts
In the last 3 months the stock price has moved by -2% that compares with no change in the earnings forecasts. On a 6 month view the stocks off 5% versus earning forecasts up 2%. That’s against a backdrop of total sales up 6% in the first 9 months, with Japan up 11%.
In December the management team hosted its latest call with Wall Street brokers. Clearly there is uncertainty in the US market, with Trump coming to power. Though they highlight they are an innovator in providing services to Millennial. Overall in the US:
As we look to 2017 and beyond we anticipate that the long-term compounded annual growth rate for Aflac U.S. will be in the range of 3% to 5%.
Turning to Japan, they had a great 2016, so the fear is that 2017 can’t be as good. Though they are clearly working hard to innovate and build out new distribution partnerships. The ageing population’s been a great driver for Aflac.
So, looks like Aflac’s in a bit of a trough. A strong business, good strategy, great margins and spitting off cash. Sure the US health insurance market is in flux, but doesn’t it feel like you are almost getting the US business for free?
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Disclosure: I have a position in $LNC and $PFG, and none in the other stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted January 10, 2017 at 05:02PM by shane_stockflare http://ift.tt/2igh5Gs
