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Here's Why You Should Hold Aflac (AFL) in Your Portfolio

Aflac Incorporated AFL 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.

Aflac 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.

Zacks Rank & Price Performance

AFL currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 14.3% compared with the industry’s growth of 12.3%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Trend in Estimates

The Zacks Consensus Estimate for AFL’s 2023 earnings is pegged at $5.79 per share, indicating an 8.6% increase from the year-ago reported figure of $5.33. The estimate rose 3.6% in the past 30 days. The consensus mark for current-year revenues is $18.2 billion.

Business Tailwinds

AFL’s U.S. segment witnessed a 5.3% increase in sales in the first quarter of 2023, 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, as well as group life and disability.

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Aflac’s strategic moves to expand its product suite in the U.S. segment are praiseworthy. The company’s U.S. business is set to benefit from refreshing cancer protection assurance policy. Going forward, product innovations and the development of virtual sales channels, increased face-to-face interactions and the recruitment of productive agents are likely to drive U.S. business sales.

The company’s Japan business gained from higher total new annualized premium sales in the first quarter. A cancer product launch is helping the unit in this regard. Products like WAYS and Child Endowment should help boost the top line as the company is focused on improving opportunities to sell its third-sector products.

The company’s benefit ratio, which measures the amount paid in claims as a percentage of premium, is expected to improve in 2023. Total net benefits and claims of $2,150 million declined 13.4% year over year in the first quarter. Its cost-saving initiatives will drive the bottom line.

The benefit ratio for Aflac U.S. segment is expected to decline as the company realizes rewards from scaling acquisitions, focusing on premium growth and investments in U.S. platforms. The same for the Japan segment is expected to decline as a shift of premiums from first-sector to third-sector products will result in more savings after paying claims.

The company also earns through net investment income. The metric increased 4.4% in the first quarter. A high-interest rate environment should boost this metric in the future.

Aflac’s balance sheet strength enables the company to take shareholder value-boosting measures. In the first quarter, the company bought back shares worth $700 million. As of Mar 31, 2023, it had 106.3 million shares authorized for buybacks left. Management paid out dividends worth $257 million in the first quarter.

Key Concerns

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

Aflac’s net cash from operations declined 23.2% in 2022 and 43.8% in the first quarter of 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.

Stocks to Consider

Some better-ranked stocks from the broader finance space are Erie Indemnity Company ERIE, Brown & Brown, Inc. BRO and Ryan Specialty Holdings, Inc. RYAN. Each of these companies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Erie Indemnity 2023 earnings indicates 26.1% year-over-year growth. The consensus estimate for EIRE’s revenues in 2023 suggests 10.4% year-over-year growth.

The Zacks Consensus Estimate for Brown & Brown 2023 earnings indicates 10.5% year-over-year growth. The consensus estimate for BRO’s revenues in 2023 suggests 13.2% year-over-year growth.

The Zacks Consensus Estimate for Ryan Specialty 2023 earnings indicates 15.7% year-over-year growth. The consensus estimate for RYAN’s revenues in 2023 suggests 17% year-over-year growth.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Aflac Incorporated (AFL) : Free Stock Analysis Report

Brown & Brown, Inc. (BRO) : Free Stock Analysis Report

Erie Indemnity Company (ERIE) : Free Stock Analysis Report

Ryan Specialty Holdings Inc. (RYAN) : Free Stock Analysis Report

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Zacks Investment Research