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Aflac (AFL) Drops 28% YTD: Will It Make a Comeback Soon?
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Shares of Aflac Inc. (AFL - Free Report) have exhibited a downtrend so far this year due to macroeconomic volatility, induced by the coronavirus as well as operational issues in its Japan business, which contributed nearly 70% to the company’s revenues in 2019.
Year to date, the stock has lost 27.7% compared with its industry’s decline of 23.7%.
What’s Dragging the Stock?
The company’s Japan business has been under pressure from the past year after its largest sales channel in the east Asian country named Japan Post was found guilty in August 2019 of inappropriately selling cancer insurance policies. During the second quarter of 2020, Aflac Japan suffered a sales decline of 58.1% from the figure registered in the second quarter of 2019 due to both pandemic adversities and the continued impact of the Japan Post investigation.
Aflac U.S. policy sales, enrollment and agent recruiting functions are highly dependent on face-to-face interactions between independent agents and brokers with prospective, and new customers and agents. Opportunities of such meetings are significantly blurred in response to the pandemic with social distancing, shelter-in-place orders and work-from-home initiatives. Face-to-face sales are posed with challenges and are affecting the sales results.
Reflecting the pandemic woes, Aflac U.S. experienced a sales drop of 31.2% year over year, during the six-month ended Jun 30, 2020, , The company anticipates this decrease to be temporary. However, management continues to evaluate the pandemic impact as claims activity within this new and unprecedented environment remains highly uncertain. In light of the anticipated combined effects of weak sales and persistency, Aflac U.S. currently expects 2020 earned premium results in the range of flat to a dip of 3% compared with the 2019 reported figures .
Further, an increase in expenses is likely to drain the company’s bottom line. The company is continuing to invest in digital initiatives, designed to speed up development, sales, administration and customer experience related to its product. These initiatives take many forms, inducing elevated near-term expense ratios. Total operating and acquisition expenses inched up 2% in the first six months of 2020. The company anticipates expense ratios to remain escalated in 2020 and 2021. It expects investments worth $25 million in digital claims automation during 2020.
Will the Stock Regain Strength?
Although in the near term, a rebound in the stock price looks difficult, the same is expected over the medium term as the compliance-related issues regarding Japan Post become clear and the U.S. sales gain from the company’s efforts to go the digital way.
Notably in its U.S. segment, the traditional agent sales team is conducting virtual recruiting and training through video conferencing to maintain or increase the recruiting pipeline. The Aflac U.S. broker sales team is focused on product enhancements amid COVID-19 as well as leveraging technology-based solutions to drive enrollment in the second half of 2020.
Notably, the segment is in its second year of the build-out of the Consumer Markets business for the digital direct-to-consumer sale of insurance and sales made through the same platform recorded steady growth. These efforts should aid the segment’s sales, thereby boosting revenues in the coming quarters.
Also, Aflac Japan deepens focus on generating new businesses through direct mail made to the existing and prospective customers. In addition, the segment is promoting digital and web-based sales to groups and preparing a new system that enables smartphone-based insurance applications by allowing the customer and an Aflac operator to see the same screen on their smartphones.
A strong capital position will provide the company with necessary strength to sail through the existing tough operating environment by making necessary investments for future prosperity.
Aflac carries a Zacks Rank #3 (Hold), currently. Better-ranked stocks in the insurance space include Employers Holding Inc. (EIG - Free Report) , AMERISAFE Inc. (AMSF - Free Report) and Fidelity National Financial, Inc. (FNF - Free Report) . While Employers Holdings sports a Zacks Rank #1 (Strong Buy), Amerisafe and Fidelity National carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings of Fidelity National, Amerisafe and Employers surpassed estimates in the last reported quarter by 53.52%, 47.06% and 157.58%, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Aflac (AFL) Drops 28% YTD: Will It Make a Comeback Soon?
Shares of Aflac Inc. (AFL - Free Report) have exhibited a downtrend so far this year due to macroeconomic volatility, induced by the coronavirus as well as operational issues in its Japan business, which contributed nearly 70% to the company’s revenues in 2019.
Year to date, the stock has lost 27.7% compared with its industry’s decline of 23.7%.
What’s Dragging the Stock?
The company’s Japan business has been under pressure from the past year after its largest sales channel in the east Asian country named Japan Post was found guilty in August 2019 of inappropriately selling cancer insurance policies. During the second quarter of 2020, Aflac Japan suffered a sales decline of 58.1% from the figure registered in the second quarter of 2019 due to both pandemic adversities and the continued impact of the Japan Post investigation.
Aflac U.S. policy sales, enrollment and agent recruiting functions are highly dependent on face-to-face interactions between independent agents and brokers with prospective, and new customers and agents. Opportunities of such meetings are significantly blurred in response to the pandemic with social distancing, shelter-in-place orders and work-from-home initiatives. Face-to-face sales are posed with challenges and are affecting the sales results.
Reflecting the pandemic woes, Aflac U.S. experienced a sales drop of 31.2% year over year, during the six-month ended Jun 30, 2020, , The company anticipates this decrease to be temporary. However, management continues to evaluate the pandemic impact as claims activity within this new and unprecedented environment remains highly uncertain. In light of the anticipated combined effects of weak sales and persistency, Aflac U.S. currently expects 2020 earned premium results in the range of flat to a dip of 3% compared with the 2019 reported figures .
Further, an increase in expenses is likely to drain the company’s bottom line. The company is continuing to invest in digital initiatives, designed to speed up development, sales, administration and customer experience related to its product. These initiatives take many forms, inducing elevated near-term expense ratios. Total operating and acquisition expenses inched up 2% in the first six months of 2020. The company anticipates expense ratios to remain escalated in 2020 and 2021. It expects investments worth $25 million in digital claims automation during 2020.
Will the Stock Regain Strength?
Although in the near term, a rebound in the stock price looks difficult, the same is expected over the medium term as the compliance-related issues regarding Japan Post become clear and the U.S. sales gain from the company’s efforts to go the digital way.
Notably in its U.S. segment, the traditional agent sales team is conducting virtual recruiting and training through video conferencing to maintain or increase the recruiting pipeline. The Aflac U.S. broker sales team is focused on product enhancements amid COVID-19 as well as leveraging technology-based solutions to drive enrollment in the second half of 2020.
Notably, the segment is in its second year of the build-out of the Consumer Markets business for the digital direct-to-consumer sale of insurance and sales made through the same platform recorded steady growth. These efforts should aid the segment’s sales, thereby boosting revenues in the coming quarters.
Also, Aflac Japan deepens focus on generating new businesses through direct mail made to the existing and prospective customers. In addition, the segment is promoting digital and web-based sales to groups and preparing a new system that enables smartphone-based insurance applications by allowing the customer and an Aflac operator to see the same screen on their smartphones.
A strong capital position will provide the company with necessary strength to sail through the existing tough operating environment by making necessary investments for future prosperity.
Aflac carries a Zacks Rank #3 (Hold), currently. Better-ranked stocks in the insurance space include Employers Holding Inc. (EIG - Free Report) , AMERISAFE Inc. (AMSF - Free Report) and Fidelity National Financial, Inc. (FNF - Free Report) . While Employers Holdings sports a Zacks Rank #1 (Strong Buy), Amerisafe and Fidelity National carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings of Fidelity National, Amerisafe and Employers surpassed estimates in the last reported quarter by 53.52%, 47.06% and 157.58%, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>