Wednesday, June 17, 2015

Aflac Soars New 52-Week High - Analyst Blog

Riding on a strong growth momentum ahead of its second-quarter earnings release, the shares of Aflac Inc. (AFL) reached a new 52-week high of $59.25 on Jul 11. This surpassed its previous high of $58.50 on Wednesday. This Zacks Rank #3 (Hold) stock escalated about 43.5% in the last 52 weeks.

In particular, this global electronic payment processor rose about 15.7% since the company reported its first-quarter 2013 results in April with a positive earnings surprise of 4.3%.

Yesterday's closing price represents a strong one-year return of about 39% as compared with the S&P 500 index return of 22%. Average volume of shares traded over the last three months stands at approximately 2852.1K.

On Apr 24, Aflac reported first-quarter earnings of $1.69 per share, comfortably beating the Zacks Consensus Estimate of $1.62. However, results lagged the year-ago number of $1.74 based on weak yen/dollar exchange rate, which had a negative impact of 15 cents on earnings per share.

Although expenses related to acquisitions, operations, claims and benefits witnessed a decline; these were more than offset by reduced revenues. Japan, which contributes significantly to results, witnessed a weak performance. Decelerated sales from the third sector, bank channel and WAYS products along with a weak average yen led to deteriorated earnings. A low interest rate environment also constricted returns from investments.

Nevertheless, strong risk-based capital, consistent dividend increment and share buybacks as well as surplus cash position are expected to mitigate this balance sheet risk and provide liquidity cushion to its long-term growth. While management had factored the slow growth based on difficult comps and weak exchange rates, we believe that modest earnings guidance, stable ratings and capital deployment instill shareholder confidence.

Further, valuation for Aflac appears reasonable. While the shares are trading at a 32.2% discount to the peer group average on a forward pri! ce-to-earnings basis, it is trading at 23.6% premium on a price-to-book basis. Moreover, both return on equity of 19.9% and return on assets of 2.4% are above the peer group average of 7.4% and 1.4%, respectively. The estimated long-term earnings growth rate is pegged at 10.7%, higher than the peer group average of 10.1%.

Apart from Aflac, other outperformers in the insurance sector include AmTrust Financial Services Inc. (AFSI), HCI Group Inc. (HCI) and American Safety Insurance Holdings Inc. (ASI). All these stocks carry a Zacks Rank #1 (Strong Buy).

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