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A month has gone by since the last earnings report for Aflac (AFL). Shares have added about 33.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aflac due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Aflac's Q3 Earnings Beat Estimates, Revenues Up Y/Y
Aflac Incorporated’s third-quarter 2020 adjusted earnings per share of $1.39 beat the Zacks Consensus Estimate by 24.1%. Further, the bottom line improved 19.8% year over year.
The company’s results have benefited from higher revenues, which seems to be partly offset by elevated costs.
Moreover, total revenues of $5.7 billion outpaced the Zacks Consensus Estimate by 3.4%. The top line also improved 2.3% year over year. This upside can be attributed to higher net investment gains. Pretax net investment gains were $117 million for the third quarter, against the year-ago pretax net investment losses of $119 million. However, growth in revenues seems to be partially offset by softer performance at the company’s Japan and U.S. segments.
Annualized return on average shareholders' equity was 31.7%, which improved 1630 basis points (bps) from the prior-year quarter.
Further, total acquisition and operating expenses increased 3.7% year over year to $1.5 billion.
Weak Results at Aflac Japan
Total revenues declined 1.8% year over year to $3.8 billion owing to a decline of 2.3% in net premium income to $3.2 billion. Premium income was impacted by limited-pay products attaining paid-up status. This was partially mitigated by a rise of 0.6% in net investment income to $663 million.
Pre-tax adjusted earnings from the Japan segment fell 10.9% from the prior-year quarter to $747 million, primarily due to lower revenues and elevated costs incurred in the quarter.
Unimpressive Performance at Aflac U.S.
Total revenues slid 1.5% year over year to $1.6 billion due to lower premiums on account of decline in sales activity and reduced net investment income. Net premium income slipped 2.6% year over year to $1.4 billion. Net investment income of $175 million plunged 4.4% in the prior-year quarter.
Pre-tax adjusted earnings from the U.S. segment were $329 million, down 1.8% year over year, primarily due to lower revenues and higher costs incurred in the quarter under review.
Share Repurchase & Dividend Update
Aflac bought back 10.9 million shares worth $400 million during the third quarter. The company had 110.9 million remaining under its share buyback program as of Sep 30, 2020.
Concurrent with the third-quarter earnings release, the board of directors approved fourth-quarter dividend of 28 cents per share. The dividend will be paid on Dec 1, 2020 to shareholders of record at the close of business as of Nov 18.
Solid Financial Position
Total investments and cash as of Sep 30, 2020 were $146.1 billion, up 4.7% year over year.
At the end of third-quarter 2020, total assets were $161 billion, up 4.4% year over year.
Shareholders' equity (excluding AOCI) was $24.6 billion, as of Sep 30, 2020, up 10.8% year over year.
Outlook for the Remaining of 2020
Although the COVID-19 pandemic is likely to put pressure on the full year sales activity across both the United States and Japan, the company anticipates decent sales improvement in the remainder of 2020 depending on the pace of economic recovery.
In order to tide over the challenges stemming from the pandemic, Aflac has initiated a voluntary separation plan to eligible employees. It not only expects to achieve run-rate annual savings between $45-$50 million in the fourth quarter but is also likely to recognize a one-time expense of around $45 million related to the separation plan in the same quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
At this time, Aflac has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aflac has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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