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Here's Why Prudent Investors are Buying Aflac (AFL) Now

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Aflac Incorporated (AFL - Free Report) is well-poised to grow on the back of its cost-curbing measures, global investments, growing network in the domestic market, and expanding product suite. Courtesy of solid prospects, this presently Zacks Rank #2 (Buy) stock is worth adding to your portfolio now.

Aflac — with a market cap of $38.6 billion — operates as a supplemental health and life insurance products provider. It has strong footprints in the United States and Japan. Based in Columbus, GA, AFL is likely to benefit from the high interest rate environment. Shares of AFL have climbed only 1.4% in the past six months and are expected to rise further in the coming days.

The Trend in Estimates

The Zacks Consensus Estimate for AFL’s current-year earnings is pegged at $5.59 per share, which has witnessed seven upward estimate revisions in the past 60 days against none in the opposite direction. The estimate rose 3.3% during this period. Aflac beat on earnings in all the last four quarters, the average being 5.9%.

Aflac Incorporated Price and EPS Surprise


Aflac Incorporated Price and EPS Surprise

Aflac Incorporated price-eps-surprise | Aflac Incorporated Quote

The consensus mark for current-year revenues is $18.5 billion. Aflac anticipates improved sales within its Aflac Japan segment this year due to improved pandemic conditions, product launches and product updates.

Key Drivers

AFL’s U.S. segment witnessed a 16.9% increase in sales in 2021 and 16.1% year over year in 2022, courtesy of growth investments and productivity gains, marking an impressive trend. The U.S. business is expected to build on that momentum with the help of its acquired platforms like dental network and vision and group life and disability. Aflac’s strategic moves to expand its product suite in the U.S. segment are praiseworthy.

Product innovations and updating, the development of virtual sales channels, increased face-to-face interactions and the recruitment of productive agents are likely to drive the U.S. business’ sales, going forward. Despite witnessing a slow start last year, the company’s Japan business gained momentum toward the end. A cancer product launch is helping the unit in this regard. Also, the benefit ratio of the business normalized toward the end of last year, positioning the company for growth for this year.

The company’s benefit ratio, which measures the amount paid in claims as a percentage of premium, is expected to improve in 2023. Our estimate suggests the metric to stay close to 58% in 2023, indicating an improvement from last year’s 60%, aiding its margins. Its cost-saving initiatives will drive the bottom line. Keeping a more agile workforce will likely increase the company’s efficiency over the medium to long term.

Aflac’s balance sheet strength enables the company to take shareholder value boosting measures. Last year, the company bought back 39.2 million shares for $2.4 billion. At the year-end, it had 116.6 million shares authorized for buybacks left. Management has also announced dividends of 42 cents per share for the first quarter of 2023, marking a 5% increase.

A Risk

There is a factor that investors should keep a careful eye on.

Aflac’s net cash from operations declined 15.2% in 2021 and 23.2% in 2023. In the last five years, the company witnessed declines in net cash from operations four times. The continuation of this trend can impact future operations. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

Other Key Picks

Some other top-ranked stocks in the broader finance space are Arthur J. Gallagher & Co. (AJG - Free Report) , Ares Capital Corporation (ARCC - Free Report) and Euronet Worldwide, Inc. (EEFT - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The consensus mark for Arthur J. Gallagher’s 2023 earnings indicates a 12.9% year-over-year increase. The consensus estimate for AJG’s revenues in 2023 suggests 12.5% year-over-year growth.

The Zacks Consensus Estimate for Ares Capital’s 2023 earnings suggests 16.8% year-over-year growth. Also, the consensus mark for ARCC’s revenues in 2023 suggests 23% year-over-year growth.

The Zacks Consensus Estimate for Euronet Worldwide’s 2023 earnings predicts 15.5% year-over-year growth. Over the past 60 days, EEFT has witnessed five upward estimate revisions against none in the opposite direction.

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