A month has gone by since the last earnings report for Aflac (
AFL Quick Quote AFL - Free Report) . Shares have added about 5.8% 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 catalysts.
Aflac's Q4 Earnings Surpass Estimates, Revenues Up Y/Y
Aflac reported fourth-quarter 2020 adjusted earnings per share of $1.07, which outpaced the Zacks Consensus Estimate by 2.9%. Further, the bottom line grew 3.9% year over year.
The company’s results gained momentum on the back of higher revenues partly offset by elevated costs.
Moreover, total revenues of $5.9 billion surpassed the Zacks Consensus Estimate by 7%. The top line also improved 5.5% year over year. This upside can be attributed to higher net investment gains. Pretax net investment gains were $268 million for the fourth quarter, which increased to nearly eight-fold from the prior-year quarter. However, growth in revenues were partly offset by weaker performance at the company’s U.S. segment.
Annualized adjusted return on equity, excluding foreign currency impact, was 12.1%, which deteriorated 130 basis points (bps) from the prior-year quarter.
Further, total acquisition and operating expenses escalated 10.4% year over year to $1.7 billion.
Strong Results at Aflac Japan
Total revenues improved 3% year over year to $3.9 billion owing to a rise of 0.5% in net premium income to $3.2 billion. Results at the segment were also driven by 16.7% year-over-year rise in adjusted net
investment income to $721 million attributable to rise in income from loan portfolio and alternative assets.
Pre-tax adjusted earnings from the Japan segment improved 8.5% from the prior-year quarter to $821 million, primarily driven by higher revenues in the quarter.
Weak Performance at Aflac U.S.
Total revenues fell 1.3% year over year to $1.6 billion due to lower premiums on account of decline in sales activity. Nevertheless, the results were partially driven by improved net investment income and other income amounting to $25 million stemming from Argus third party administrative fees. Net premium income slipped 2.3% year over year to $1.4 billion. Adjusted net investment income of $182 million inched up 1.1% from the prior-year quarter.
Pre-tax adjusted earnings from the U.S. segment were $187 million, down 32% year over year, primarily due to lower revenues, higher costs and COVID-19 incurred claims in the quarter under review.
Share Repurchase & Dividend Update
Aflac bought back 11.8 million shares worth $500 million during the fourth quarter. The company had 99.2 million remaining under its share buyback program as of Dec 31, 2020.
In November 2020, the board of directors approved a 17.9% hike in first-quarter 2021 dividend. The dividend of 33 cents per share will be paid on Mar 1, 2021 to shareholders of record at the close of business as of Feb 17.
Solid Financial Position
Total investments and cash as of Dec 31, 2020 were $149.8 billion, up 8.4% from 2019-end.
At the end of fourth-quarter 2020, total assets were $165.1 billion, up 8.1% from 2019-end.
Shareholders' equity (excluding AOCI) was $24.6 billion, as of Dec 31, 2020, up 10.3% from 2019-end.
For 2020, the company’s revenues totaled $22.1 billion, down 0.7% year over year. Full-year adjusted earnings per share was $4.96, which improved 11.7% year over year.
Annualized adjusted return on equity, excluding foreign currency impact, was 15%, which deteriorated 10 bps from the prior year. During 2020, the company repurchased 37.9 million shares worth $1.5 billion.
Outlook for the First Half of 2021
Although the COVID-19 pandemic is likely to put pressure on sales activity across both the United States and Japan during the first half of 2021, the company anticipates decent sales improvement in the same time frame as the same has been improving marginally for the prior two quarters. In the second half of this year, the company remains optimistic of benefiting from investments made in its virtual and digital sales methods during 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
At this time, Aflac has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Aflac has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.