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Why Is Aflac (AFL) Down 7% Since Last Earnings Report?

It has been about a month since the last earnings report for Aflac (AFL). Shares have lost about 7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aflac due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Aflac’s Q1 Earnings Beat on Lower Benefits and Expenses

Aflac reported first-quarter 2023 adjusted earnings per share of $1.55, which beat the Zacks Consensus Estimate by 12.3% and our estimate by 17.4%. The bottom line increased 7.6% year over year.

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Aflac’s revenues dropped 7.2% year over year to $4,800 million in the quarter under review. The top line beat the consensus mark by 4.4% and our estimate by 6%.

The better-than-expected first-quarter results were supported by higher sales, reduced benefits and expenses, and improved profit levels from U.S. businesses. The positives were partially offset by lower net investment income and weaker performance in the Japan unit.

Q1 Performance

Adjusted net investment income fell 3.9% year over year to $845 million.

Total net benefits and claims of $2,150 million declined 13.4% year over year in the first quarter. Total acquisition and operating expenses dropped 6.3% year over year to $1,308 million. Total benefits and expenses of $3,458 million fell 10.9% year over year.

Segmental Update

Aflac Japan

The segment’s adjusted revenues decreased 15.8% year over year to $2,790 million in the quarter under review. Total net earned premiums of $2,170 million dropped 17.3% year over year due to limited pay products attaining paid-up status and implementation of the global reinsurance strategy. The figure missed the Zacks Consensus Estimate by 4.3%.

Adjusted net investment income decreased 10.1% year over year to $611 million. Pretax adjusted earnings of the segment amounted to $788 million, which tumbled 9.4% year over year in the first quarter.

New annualized premium sales of $100 million improved 10.8% year over year. The benefit ratio of the segment was 67% in the first quarter.

Aflac U.S.

The segment reported adjusted revenues of $1,660 million, which climbed 1.3% year over year in the quarter under review. Total net earned premiums climbed 1.1% year over year to $1,428 million. The figure beat the Zacks Consensus Estimate by 1%.

Adjusted net investment income of $197 million climbed 7.1% year over year, on the back of increased floating rate income. Pretax adjusted earnings of the segment were $352 million, up 5.7% year over year in the first quarter due to reduced benefits recognized.

Aflac U.S. sales of $315 million grew 5.3% year over year. The first-quarter benefit ratio came in at 45.6%.

Financial Position (as of Mar 31, 2023)

Aflac exited the first quarter with total cash and cash equivalents of $3,809 million, which declined from $3,943 million at 2022-end. Total investments and cash of $120.5 billion increased from $117.4 billion at 2022-end. Total assets rose to $135 billion from $131.7 billion at the fourth-quarter end.

Adjusted debt decreased to $7,086 million at the first quarter-end from $7,105 million at 2022-end.

Total shareholders' equity of $19,784 million declined from $20,140 million at 2022-end.

Adjusted debt to adjusted capitalization came in at 20.5%, which improved 40 basis points (bps) from 2022-end.

While it has no debt maturities in less than a year, total debt maturities worth $1,330 million are expected within the next five years.

Adjusted book value per share increased 10.8% year over year to $44.66.

Adjusted return on equity, excluding foreign currency impact of 14.8% improved 20 bps year over year.

Capital Deployment

Aflac bought back 10.3 million shares worth $700 million in the first quarter. It had 106.3 million shares left for buyback as of the first-quarter end.

Management announced dividends of 42 cents per share for the second quarter of 2023, sequentially flat. The dividend will be paid out on Jun 1, 2023, to shareholders of record as of May 17.

Outlook

Aflac estimates improved sales in its Japan business for 2023, buoyed by improving pandemic conditions, product launches and product updates.

Management also remains optimistic about strong sales results within its U.S. business. Improving productivity, contributions from platforms like network dental and vision and group life, and disability are expected to continue supporting the results.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Aflac has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Aflac has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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