Here's Why Investors Should Hold On To Aflac (AFL) Stock

Aflac, Inc. (NYSE:AFL) is gaining from its strong U.S. business and a solid capital position while its Japan business remains somewhat subdued.

The company’s shares have gained 18.3% year to date, compared with 14.1% growth of the industry it belongs to.

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Factors Aiding the Stock

Aflac continues to gain from its strong U.S. business. The company has undertaken a number of growth initiatives in this business such as the adoption of Everwell and One Pay Day for increased penetration, delivery of value-added services and better client retention, product partnering to drive improved account values and employee access, and investment in administrative capabilities. Per the company, investments made in distribution and customer experience will promote increased productivity, persistency, and improved long-term economics.

Recently, Aflac acquired Argus Dental & Vision. Argus is a high-quality respected provider of turnkey administrative services supporting Medicare Advantage and Medicaid Network Dental and Vision products on behalf of large healthcare providers. This acquisition is a very important move for Aflac U.S. and it provides a platform to build out its network in dental and vision products.

Aflac’s strong balance sheet position provides it with financial flexibility. The company is well positioned to maintain strong risk-adjusted capital at its operating subsidiaries supported by consistent earnings and good liquidity. It also has a strong capital management strategy in place. For the company, 2019 marks the 37th consecutive year of dividend increase. For 2019, Aflac expects repurchasing shares of $1.3 billion to $1.7 billion, compared with $1.3 billion shares repurchased in 2018.

Some Concerns

The company’s Japan business, which contributes nearly 70% of Aflac’s consolidated revenues, has been under pressure in the recent years due to low interest rates in the country. Recently, this segment faced some compliance issue related to its strategic partner Japan Post, which accounted nearly 25% of third-sector sales in 2018. Due to allegations of agent misconduct (relating to double charging its customers), the company might lower sales target per agent and improve sales practices. Thus, initiatives to be taken to rectify the glitch might dampen sales for 2019. Management expects annual sales for 2019 to witness mid-teens decline in the third-sector and first-sector product sales.

The company continues to invest in digital initiatives designed to address development, sales, administration and customer experience related to its products. These initiatives will lead to elevated near-term expense ratios.

Total operating and acquisition expenses were up 1.4% in the first nine months of 2019. We might therefore see a pressure on margins.
Stocks to Consider

Some better-ranked stocks in the insurance sector are EverQuote, Inc. (NASDAQ:EVER) , Kemper Corp. (NYSE:KMPR) and Primerica, Inc. (NYSE:PRI) . Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EverQuote, Kemper and Primerica have surpassed earnings estimates in the last four quarters by 84.25%, 16.4% and 4.1%, respectively, on average.

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