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Why Aflac (AFL) Should be Part of Your Investment Portfolio

By Zacks Investment ResearchStock MarketsSep 13, 2021 01:40AM ET
www.investing.com/analysis/why-aflac-afl-should-be-part-of-your-investment-portfolio-200601768
Why Aflac (AFL) Should be Part of Your Investment Portfolio
By Zacks Investment Research   |  Sep 13, 2021 01:40AM ET
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Aflac Inc. AFL is well poised for growth on the back of regaining its top-line strength and other strategic measures. These include product introductions, expansion of its virtual sales platform, resumption of sales via Japan Post and a solid balance sheet.

The stock has witnessed an upward revision in its 2021 earnings estimates by 6.9% to $5.59 over the past 60 days. It currently carries a Zacks Rank #2 (Buy) and a Value Score A. It’s been proved time and again that stocks with a solid Zacks Rank #1 (Strong Buy) or 2 and a Value Score of A or B offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Last year, the company’s revenues suffered pandemic-led disruptions in the face-to-face sales of insurance policies. Per the company, physical sales are best suited to selling its products.

Investment in Technology

The insurer was steadfast in constructing its virtual digital sales platform, which will to some extent, contribute to sales. Its increased use of the virtual medium can be found in the second quarter when it processed more than 14,000 online applications compared with nearly 8,000 in the first quarter. In fact, partly due to this virtual platform, sales improved year over year for the first time during the pandemic in the June quarter in both the United States and the Japan segments.

Given the ongoing level of recovery in the pandemic situation, the company expects a stronger second half of the year in both countries.

U.S Segment Strongly Placed

Sales are set to rise in this unit owing to the acquisition of Argus Holdings in 2019, which expanded the company’s product suite by adding dental and vision products. These products are considered very important benefits by its employees. Expansion into the vision and dental insurance marketplaces positions Aflac U.S. well for long-term success. Alongside strong persistency (solid premium persistency shows customer retention), underwriting profits and investment income continue to drive the pre-tax margins at this segment.

Japan Segment Set for Revival

Product development, online or digitally-assisted sales and specific sales efforts on the Japan Post platform will boost long-term growth. Sales are set to improve in the coming quarters owing to resumed sales activity at the Japan Post. Also, the launch of cancer insurance products at the start of this year will aid sales.

The product pipeline comprising short-term health and income support as well as care product targets supplemental elderly care. These will meaningfully bolster future sales. Japan’s aging population and the anticipated continued shift in the financial burden from government levels to individuals bode well for sales growth of these products.

Apart from taking measures to augment its sales, Aflac Japan is working to make itself paperless, which means all the processing will be technologically driven. This will bump up operational efficiency in the long run.

Solid Investment Income

With regard to its investment income, which is another component of the insurers’ revenues, Aflac did an impressive job by investing in variable assets. Since interest rates in fixed investments have been low over the past many years and will remain so in the foreseeable future, the company is investing in other assets. Courtesy of its superior returns on variable investments, net investment was up in the first six months of 2021.

Dividend Aristocrat

Aflac is firing on all cylinders to keep its business prospering. What attracts investors the most is its infallible dividend, which has been growing consistently from the past 38 consecutive years. Also, its low dividend payout ratio of 10.4% gives assurance of the company's ability to maintain and increase its dividend payouts going forward.Given its well-placed growth strategies and an improving economy, shares are sure to gain further. The stock thus deserves a safe investment option for long-term gains. Considering the current price-to-earnings ratio of 10.29, the stock is below its 5-year median of 11.17 and is just a tad higher than the industry average of 9.94. Thus, buying it at the current price level is a good bargain.

Year to date, the stock has gained 23% compared with its industry's growth of 16.3%.

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Other stocks in the insurance industry worth considering include The Hartford Financial Services Group (NYSE:HIG), Inc. HIG, MetLife (NYSE:MET), Inc. MET and American International Group (NYSE:AIG), Inc. AIG, which currently carry the same top Zacks Rank as Aflac.



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The Hartford Financial Services Group, Inc. (HIG): Free Stock Analysis Report

American International Group, Inc. (AIG): Free Stock Analysis Report

MetLife, Inc. (MET): Free Stock Analysis Report

Aflac Incorporated (NYSE:AFL): Free Stock Analysis Report

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Why Aflac (AFL) Should be Part of Your Investment Portfolio
 

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Why Aflac (AFL) Should be Part of Your Investment Portfolio

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