On Mar 12, the Zacks Investment Research downgraded Aflac Inc. (AFL - Free Report) to a Zacks Rank #5 (Strong Sell).
Why the downgrade?
Aflac has witnessed sharp downward estimate revisions after reporting disappointing fourth-quarter and full-year 2012 results. Shares of this life and health insurer are likely to continue fluctuating given the absence of any major growth catalyst in the near future.
On Feb 5, Aflac reported fourth-quarter 2012 operating earnings per share of $1.48, which came in line with the Zacks Consensus Estimate and were slightly ahead of $1.45 recorded in the year-ago quarter.
However, total revenue of $6.38 billion fell short of the Zacks Consensus Estimate of $6.61 billion, although it rose 6.6% from the prior-year period. An unfavorable dollar/yen exchange rate and the low-rate environment marred most of the upside.
Alongside, higher operating expenses and strong sales of low-margin general health products in Japan have moderated the improvement in benefit ratio, which adversely affects the margins.
Further, Aflac’s indulgence in de-risking activities has shifted its portfolio toward investments with less risk and lower yields, which will further lessen investment income. Management’s guidance also reflects difficult comps and continuation of the sluggish growth period in 2013.
The Zacks Consensus Estimate for 2013 decreased 6.0% to $6.39 per share over the last 60 days, with all 14 estimates being revised downward. For 2014, 7 of 17 estimates were revised downward, over the last 60 days, sinking the Zacks Consensus Estimate by 4.8% to $6.91 per share. No upward revisions have been witnessed for both the years.
Other Stocks to Consider
However, not all insurers are performing as poorly as Aflac. Some stocks that are outperforming in the insurance sector include CNO Financial Group Inc. (CNO - Free Report) , XL Group Plc (XL - Free Report) and Aegon NV (AEG - Free Report) . All of these carry a Zacks Rank #1 (Strong Buy).