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Aflac (AFL) Rides on U.S. Business Growth, Cost-Control Moves
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Life and health insurer Aflac, Inc. (AFL - Free Report) is poised to grow on the back of its U.S. segment, expense-control initiatives as well as a solid capital position.
The company’s U.S. segment saw a decline in sales during the first nine months of 2020 due to the COVID-19 impact. However, a number of factors are likely to drive growth for this segment.
Last year, the company completed the buyout of Argus Dental & Vision. This is likely to boost its U.S. segmental growth as Argus has a strong reputation for servicing Medicare and Medicaid dental and vision members. In the United States, the build-out of network dental and vision remains on track. The company successfully filed its new network products in 48 states with approvals received in 37 states. It is up and running with sales in 10 states and expects to ramp up the same moving into 2021.
The company's acquisition of Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business (completed in November 2020) will further enhance its position in the broker distribution network across the United States. With little impact on the fourth quarter, the acquisition positions the company for an expanded capacity in 2021.
Its Consumer Markets platform's hospital, accident and cancer product filings are expected to be completed in early 2021. The company also plans to include life insurance in 2021. Aflac U.S. is in its second year of the Consumer Markets business for the digital direct-to-consumer sale of insurance while sales made through the same platform continued to grow. The addition of life insurance will further help sales increase.
In order to improve customer experience and persistency, the company provided an embedded wellness benefit in its accident products. Though this initiative induced a rise in the benefit ratio (more than expected by the company), it will add value to the customers and improve their experience along with delivering a better long-term persistency.
Aflac’s expense-saving initiative is also likely to aid its margins. The company offered a voluntary separation plan to eligible employees, which will reduce its U.S. insurance and corporate workforce by approximately 9%. The company expects run-rate annual savings in the range of $45-$50 million for the fourth quarter and estimates a one-time expense of approximately $45 million associated with the separation plan for the same period. Though these costs will drain its margins in the near term, a more agile workforce will augment the segment’s efficiency over the medium to long term.
The company continues to maintain a strong risk-adjusted capital structure at its operating subsidiaries, backed by consistent earnings and sturdy liquidity. It also has a strong capital management strategy in place. The ongoing year marked the 38th consecutive dividend hike for the company and management announced that it will maintain its dividend trend despite the COVID-19-induced uncertainty.
The company’s total debt to total capital of 20.9% remained unchanged sequentially. Further, its times interest earned of 17.8X is better than the industry's average of 15.9X, implying that its earnings are sufficient to cover its interest obligations.
The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.5% upward over the past 30 days.
The stock has rallied 28.8% in the past six months compared with the industry’s growth of 37.5%.
Other insurers in the same space, namely Amerisafe Inc. (AMSF - Free Report) , Employers Holdings Inc. (EIG - Free Report) and Unum Group (UNM - Free Report) have also gained 6.5%, 23.3% and 52.9%, respectively.
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
Aflac (AFL) Rides on U.S. Business Growth, Cost-Control Moves
Life and health insurer Aflac, Inc. (AFL - Free Report) is poised to grow on the back of its U.S. segment, expense-control initiatives as well as a solid capital position.
The company’s U.S. segment saw a decline in sales during the first nine months of 2020 due to the COVID-19 impact. However, a number of factors are likely to drive growth for this segment.
Last year, the company completed the buyout of Argus Dental & Vision. This is likely to boost its U.S. segmental growth as Argus has a strong reputation for servicing Medicare and Medicaid dental and vision members. In the United States, the build-out of network dental and vision remains on track. The company successfully filed its new network products in 48 states with approvals received in 37 states. It is up and running with sales in 10 states and expects to ramp up the same moving into 2021.
The company's acquisition of Zurich North America's U.S. Corporate Life and Pensions (Group Benefits) business (completed in November 2020) will further enhance its position in the broker distribution network across the United States. With little impact on the fourth quarter, the acquisition positions the company for an expanded capacity in 2021.
Its Consumer Markets platform's hospital, accident and cancer product filings are expected to be completed in early 2021. The company also plans to include life insurance in 2021. Aflac U.S. is in its second year of the Consumer Markets business for the digital direct-to-consumer sale of insurance while sales made through the same platform continued to grow. The addition of life insurance will further help sales increase.
In order to improve customer experience and persistency, the company provided an embedded wellness benefit in its accident products. Though this initiative induced a rise in the benefit ratio (more than expected by the company), it will add value to the customers and improve their experience along with delivering a better long-term persistency.
Aflac’s expense-saving initiative is also likely to aid its margins. The company offered a voluntary separation plan to eligible employees, which will reduce its U.S. insurance and corporate workforce by approximately 9%. The company expects run-rate annual savings in the range of $45-$50 million for the fourth quarter and estimates a one-time expense of approximately $45 million associated with the separation plan for the same period. Though these costs will drain its margins in the near term, a more agile workforce will augment the segment’s efficiency over the medium to long term.
The company continues to maintain a strong risk-adjusted capital structure at its operating subsidiaries, backed by consistent earnings and sturdy liquidity. It also has a strong capital management strategy in place. The ongoing year marked the 38th consecutive dividend hike for the company and management announced that it will maintain its dividend trend despite the COVID-19-induced uncertainty.
The company’s total debt to total capital of 20.9% remained unchanged sequentially. Further, its times interest earned of 17.8X is better than the industry's average of 15.9X, implying that its earnings are sufficient to cover its interest obligations.
The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.5% upward over the past 30 days.
The stock has rallied 28.8% in the past six months compared with the industry’s growth of 37.5%.
Other insurers in the same space, namely Amerisafe Inc. (AMSF - Free Report) , Employers Holdings Inc. (EIG - Free Report) and Unum Group (UNM - Free Report) have also gained 6.5%, 23.3% and 52.9%, respectively.
Aflac carries Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>