Aflac Incorporated (AFL - Free Report) has been gaining momentum from higher demand for supplemental insurance solutions and robust capital position.
The Zacks Consensus Estimate for its 2020 earnings per share is pegged at $4.62, indicating an improvement of 4.1% from the year-ago reported figure.
The company has an impressive surprise history. It beat estimates in each of the trailing four quarters, the average surprise being 10.92%.
Aflac’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 12% compares favorably with the industry’s ROE of 11.9%.
Factors to Note
This accident and health insurer continues to gain from its U.S. segment, which intends to provide enhanced benefits solutions for helping the vast workforce across the United States. This has made Aflac a leading provider of supplemental insurance at the worksite in the United States. Also, employees’ need to get rid of certain ‘out-of-pocket’ costs associated with medical events has been driving demand for supplemental insurance solutions, which positions Aflac well for long-term growth.
Aflac has also been a leading cancer and medical insurer, which generally comes under its third sector product portfolio, across Japan. Notably, the company primarily operates in Japan through Aflac Japan segment. An aging population and pressure imposed by escalating costs on national healthcare system continues to drive demand for Aflac’s third sector insurance solutions.
Moreover, the company has been striving to expand its product portfolio by venturing into newer businesses as evident from its buyout of Argus Dental and Vision last year. In addition to this, Aflac also undertakes several growth initiatives and makes constant investments to strengthen core businesses.
Furthermore, Aflac boasts of a strong capital position, which enables it to undertake shareholder-friendly moves via share buybacks and dividend payouts. The company has been raising dividend for 37 straight years. Last month, its board of directors authorized an increase in its existing share repurchase program in a bid to return more value to shareholders. This latest authorization will enable the company to buy back additional shares of up to 100 million. This move bodes well amid the financial disruption induced by the COVID-19 pandemic.
Its total debt to total capital of 20.9% at second-quarter end compares favorably with the industry’s figure of 21.4%. Also, the company’s times interest earned of 17.8x at second-quarter end is good when compared with the industry's figure of 15.9x, implying that its earnings are sufficient to cover interest obligations.
However, shares of this Zacks Rank #3 (Hold) company have lost 25.9% in a year compared with the industry’s decline of 21.8%. We remain concerned about the company’s high costs incurred as it continues to invest in digital initiatives designed to address accelerate development, sales, administration, and customer experience related to its product.
Nevertheless, we believe that the company’s strong fundamentals are likely to drive shares going forward.
Stocks to Consider
Some better-ranked stocks in the insurance space are Old Republic International Corporation (ORI - Free Report) , James River Group Holdings, Ltd. (JRVR - Free Report) and Assurant, Inc. (AIZ - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Old Republic, James River Group and Assurant have a trailing four-quarter earnings surprise of 36.72%, 14.86% and 6.00%, on average, respectively.
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