Aflac (AFL) Incorporated is a provider of supplemental health and life insurance products. It operates in the United States and Japan and can benefit from growth opportunities spurred by cost-cutting measures, global investments, an expanding product suite, and a growing domestic network.
Additionally, the company’s competitive position is likely to improve as interest rates remain high.
Zacks Rank & Price Performance
While AFL currently has a Zacks Rank #3 (Hold), its stock price has increased by 14.3% over the past year, outpacing the industry growth rate of 12.3%.
Image Source: Zacks Investment Research
Trend in Estimates
The Zacks Consensus Estimate for AFL’s 2023 earnings is $5.79 per share, an increase of 8.6% over the previous year. In the past 30 days alone, the estimate has risen by 3.6%. Revenues for the current year are forecasted to be $18.2 billion.
Business Tailwinds
During Q1 2023, AFL’s U.S. segment benefited from a 5.3% increase in sales driven by growth investments and productivity gains. Additionally, the U.S. business is expected to build on this momentum by leveraging its platforms, including its recently acquired dental and vision services alongside group life and disability coverage.
AFL’s U.S. operation has made commendable efforts to broaden its product offering. Its recent launch of cancer protection assurance policy should help fuel sales, while a focus on developing virtual and face-to-face sales channels, recruiting productive agents, and introducing product innovations should further boost sales.
AFL’s Japan business performed well due to the higher total new annualized premium sales in Q1, primarily driven by the launch of a new cancer product. Products such as WAYS and Child Endowment should continue to support revenue growth as AFL aims to improve opportunities to sell its third-sector products.
AFL’s benefit ratio, which measures the amount of claims paid as a percentage of premium, is expected to improve in 2023. The total net benefits and claims for Q1 2023 were $2,150 million, down 13.4% YoY. Furthermore, cost-saving initiatives should help improve the bottom line.
AFL is also expected to see declines in its benefit ratio as it realizes the benefits from scaling acquisitions, premium growth, and U.S. platform investments. Similarly, the benefit ratio in Japan is expected to decrease as more savings accrue after paying claims due to the shift of premiums from first-sector to third-sector products.
Additionally, the company’s investment income increased by 4.4% in Q1 2023, and a high-interest-rate environment should further benefit this metric.
AFL’s strong balance sheet provides a platform for the company to focus on enhancing shareholder value. For example, the company repurchased shares worth $700 million in Q1 and had 106.3 million shares authorized for future buybacks at the end of Mar 2023. Furthermore, the company paid out $257 million in dividends during Q1.
Key Concerns
Investors should carefully monitor the trend in AFL’s net cash from operations. It dropped by 23.2% in 2022 and by 43.8% in Q1 2023. While AFL has seen declines in its cash from operations four times in the last five years, a strategic approach will likely drive growth in the long term.
Stocks to Consider
Erie Indemnity Company (ERIE), Brown & Brown, Inc. (BRO), and Ryan Specialty Holdings, Inc. (RYAN) are all better-ranked compared to AFL, carrying a Zacks Rank #2 (Buy). Click here to view today’s Zacks #1 Rank (Strong Buy) stocks.
For 2023, ERIE’s consensus estimate for earnings calls for year-over-year growth of 26.1%, while its revenues are expected to grow 10.4% YoY. Meanwhile, BRO’s consensus estimate for earnings implies YoY growth of 10.5%, with the company’s revenues expected to increase 13.2% YoY. Finally, RYAN’s consensus estimate for earnings predicts YoY growth of 15.7%, while its revenues are expected to grow by 17% YoY.
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