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Aflac Poised for Long-Term Growth Despite Low Interest Rates

On May 27, 2016, we issued an updated research report on Aflac Incorporated AFL.

Aflac’s first-quarter 2016 earnings surpassed the Zacks Consensus Estimate and also improved year over year. Operations in both the U.S. and Japan remained strong. However, expenses increased. Nonetheless, Aflac continues to project operating earnings per share between $6.17 and $6.41 in 2016. The insurer is also on track to return $1.4 billion capital to its shareholders.

The company is making efforts to differentiate itself from its customers by paying claims in a single day. The company intends to continue its promotion of the program – namely “One Day Pay” – to consumers as it believes that it will help increase brand loyalty and account penetration. The company plans to pay over 2 million One Day Pay claims in 2016.

Further, Aflac U.S. has displayed an increasing trend in terms of revenues as well as pretax income and the first quarter was no exception. In addition, the company witnessed modest growth in the new annualized premiums of its U.S. division. The company continues to believe that annualized premium sales growth of Aflac U.S. in 2016 will be in the range of 3–5%. In addition, the company anticipates long-term compound annual growth rate (CAGR) at or above the voluntary market growth rate of 5% for this segment.

Aflac continues to maintain strong risk-adjusted capital as its operating subsidiaries are supported by consistent earnings and good liquidity throughout the organization. The company also has a robust capital management strategy in place.

With respect to share repurchases and dividend payments, the company spent $600 million to buy back 10.2 million shares in the first quarter. Currently, 38.2 million shares remain available for buyback under its authorization. In the first quarter, the company returned $773 million to its shareholders via dividends and share repurchases.

However, exposure to a low interest rate environment is a headwind which is expected to weigh on the company’s investment income. Moreover, forex volatility and a challenging regulatory environment in Japan raise concerns.

Zacks Rank and Stocks to Consider

Currently, Aflac carries a Zacks Rank #3 (Hold). Some better-ranked stocks are Amerisafe, Inc. AMSF, Trupanion, Inc. TRUP and Employers Holdings, Inc. EIG. While Amerisafe sports a Zacks Rank #1 (Strong Buy), both Trupanion and Employers Holdings hold a Zacks Rank #2 (Buy).

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AFLAC INC (AFL): Free Stock Analysis Report
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