On May 10, 2019, shares of Aflac Inc. AFL scaled a 52-week high of $51.36. The rally in the stock is believed to have been due to its sustained profitable operating performance along with a favorable guidance that further points to strong results.
In a year’s time, the stock has gained 13% compared with the industry’s growth of 9%. The stock carries a Zacks Rank #2 (Buy) and a Value Score of B. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best opportunities in the value investing space.
The stock has witnessed a 1.8% and 1.1% upward revision in earnings estimates for 2019 and 2020, respectively.
What’s Favoring the Stock?
Strength in its U.S and Japan business has driven revenue growth at Aflac. The company continues to gain from its industry leading market share in both the regions. A diverse and productive distribution network has contributed to the company’s premium growth. Innovative products and customized and high-quality services have helped it to attract new clients and retain the existing ones.
A strong capital position along with stable earnings and cash flow provides strength to the company and allows for strategic investments.
Will the Rally Continue?
Last year, Aflac successfully changed its Japan business from a branch to a subsidiary. Japan has been a significant business generator for the company. This change in operating structure better aligns Aflac with the global regulatory framework.
It also recently entered into an agreement with Japan Post per which the latter will buy 7% of the company’s shareholding. This deal is expected to drive business expansion in the region, thus aiding overall growth.
The company has suffered from low interest rates in Japan and has changed the product mix to emphasize sale of third-sector products, which are less prone to interest rate volatility..
Though Aflac anticipates that in its Japan business, total earned premium of third-sector and first-sector protection products combined will slightly decline due to limited pay policies reaching paid-up status and sales are expected to decline in low-to-mid single digits for 2019, the long-term picture remains bright.
In its U.S business, the company continues to put up a good show, with continuous growth in premiums since past several years. It has undertaken a number of growth initiatives in this segment such as the adoption of Everwell and One Pay Day for increased penetration, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities.
Per the company, investments made in distribution and customer experience will promote increased productivity, persistency, and improved long-term economics. In 2019, the company expects improvement in sales and 2-3% growth in earned premium.
Aflac’s strong risk-adjusted capital position is another positive. The company has raised dividends for 37 consecutive years and its current yield of 2.2% is higher than the industry average of 0.5%. The stock is known as dividend aristocrat and is viewed attractively by dividend seeking investors.
Given that the company’s favorable operating performance is likely to continue, we see dividend growth to remain on track.
The above factors are expected to fuel Aflac’s stock rally.
Other Stocks to Consider
Other stocks worth considering are Employers Holdings, Inc. EIG, Amerisafe, Inc. AMSF and CNA Financial Corp. CNA. While Employers Holdings sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy). Employers and Amerisafe, each have surpassed estimates in all four reported quarters with an average positive surprise of 78.3% and 26.6%, respectively. CNA Financial surpassed estimates in the last-reported quarter by 12.5%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top 10 Stocks for 2019
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