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Why Is Aflac (AFL) Up 6.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Aflac (AFL). Shares have added about 6.1% 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 drivers.

Aflac's Q3 Earnings Beat on Lower Benefits and Expenses

Aflac reported third-quarter 2022 adjusted earnings per share (EPS) of $1.23, which beat the Zacks Consensus Estimate by a whisker. However, the bottom line decreased 19.6% year over year.

AFL’s revenues dropped 8% year over year to $4,820 million in the quarter under review but the same was higher than our estimate of $4,644.1 million. The top line outpaced the consensus mark by 4.4%.

The quarterly results benefited from reduced benefits and expenses, partly offset by a variable investment income loss from alternative investments and a weaker contribution to revenues from its Japan and U.S. businesses.

Q3 Performance

Adjusted net investment income fell 9.5% year over year to $885 million.

Total net benefits and claims of $2,340 million declined 10.3% year over year in the third quarter, while our estimate for the metric stands at $2,529.3 million. Total acquisition and operating expenses dropped 9.1% year over year to $1,377 million.

Total benefits and expenses of $3,717 million fell 9.9% year over year.

Segmental Update

Aflac Japan

The segment’s adjusted revenues decreased 21.4% year over year to $2,913 million in the quarter under review. Net earned premiums of $2,241 million dropped 23.6% year over year due to limited pay products attaining paid-up status and pandemic-linked adversities on sales. The figure, however, missed the Zacks Consensus Estimate of $2,361 million.

Adjusted net investment income plunged 13.1% year over year to $663 million.
Pretax adjusted earnings of the segment amounted to $630 million, which tumbled 35.5% year over year in the third quarter.

New annualized premium sales of $100 million improved 10.2% year over year. Benefit ratio of the segment came in at 75% in the third quarter.

Aflac U.S.

The segment reported adjusted revenues of $1,598 million, which dipped 1.1% year over year in the quarter under review. Net earned premiums slid 1.3% year over year to $1,375 due to reduced year-to-date persistency. The figure fell short of the Zacks Consensus Estimate of $1,381 million

Adjusted net investment income of $185 million slipped 3.1% year over year. Pretax adjusted earnings of the segment came in at $309 million, down 13.7% year over year in the third quarter due to higher general expenses and increased amortization of deferred acquisition costs.

Aflac U.S. sales of $334 million grew 11.8% year over year. The third-quarter benefit ratio came in at 45.2%.

Financial Position (as of Sep 30, 2022)

Aflac exited the third quarter with total cash and cash equivalents of $4,710 million, which declined 24.1% year over year.

Total investments and cash of $114.5 billion declined 21.6% year over year.

Total assets dropped 20.2% year over year to $128.1 billion.

Adjusted debt decreased 11.8% year over year to $6,762 million at the third-quarter end.

Total shareholders' equity of $24,152 million plunged 28% year over year.

Adjusted debt to adjusted capitalization came in at 22.4%, which improved 160 basis points (bps) year over year.

While it has no debt maturities in less than a year, total debt maturities worth $1,732 million are expected within the next five years.

Adjusted book value per share increased 13.5% year over year to $44.34.

Adjusted return on equity of 10.6% deteriorated 540 bps year over year.

Capital Deployment

Aflac bought back 11.1 million shares worth $650 million during the third quarter. It had 25.6 million shares left for buyback as of Sep 30, 2022.

Management announced a dividend of 40 cents per share in the fourth quarter of 2022. The dividend will be paid out on Dec 1, 2022, to its shareholders of record as of Nov 16.

Outlook

Aflac estimates improved sales in its Japan business for the fourth quarter of 2022, buoyed by the expectation of productivity improvements at Japan Post and continuous execution of product introduction and refreshment plans. The benefit ratio is likely to have normalized in the fourth quarter as well.

Management also remains optimistic about strong sales results within its U.S. business in the fourth quarter of 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Aflac has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second 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.

Outlook

Aflac has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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