A recent and significant weakening of the yen versus the dollar will pressure profit growth for Aflac Inc., which has a large Japanese arm, according to a Sterne Agee analyst who lowered his rating on the stock.
Citing the weaker yen, analyst John Nadel cut his earnings expectations for Aflac for this year and 2014 to levels below the average estimates forecast by Wall Street analysts polled by FactSet. In a research note Tuesday, he cut his rating on the company's stock to "Neutral" from "Buy" and trimmed his price target by $1 to $62.
Aflac shares closed Monday at $52.95.
Nadel said his new estimates are based on a dollar being worth 89 yen, which is roughly the current exchange rate. His previous estimates were based on a prior exchange rate of about 79 or 80 yen per dollar. The dollar has risen 15 percent against the yen in the past 12 months. That can hurt Aflac's Japanese profits when they're translated back into U.S. dollars.
Nadel said he is not recommending that investors sell Aflac shares, but the stock isn't "cheap" enough that he thinks investors should buy it. Shares have gained 23 percent in the past 52 weeks.
Aflac, based in Columbus, Ga., provides disability and supplemental insurance, primarily in Japan and the U.S.
Sterne Agee has received compensation from Aflac for non-investment banking, securities-related services in the past year and intends to seek compensation for investment banking services in the next few months, according to disclosures filed with Nadel's report.