AFL Market Research & Analysis Report
Updated May 8, 2014

Growth and Balance Sheet

AFL net income fell to $732 million, or $1.60 per share, in the three months ending March 31, compared to $892 million, or $1.90 per share, in the same quarter a year ago. Adjusted to remove one-time items, it earned $1.69 per share. Analysts expected adjusted earnings of $1.58 per share, according to FactSet. Revenue fell 9.1 percent to $5.6 billion from $6.2 billion. Analysts expected revenue of $5.8 billion. Sales slowed in Japan compared with a year earlier, when customers ramped up purchases ahead of a premium increase. Aflac said new annualized premium sales declined 49 percent to 27.6 billion yen.

Valuation

AFL PE stands at 10.47 below the industry average of 11.87, and below the S&P 500 average of 17.83.  The company is currently trading below the preferable P/E ratio of 15x. AFL current Price/Sales of 0.97 is above the average of its industry, of 0.82.  The beta of 2.13 implies higher volatility of the stock with respect to the S&P 500. AFL has shown positive earnings consistency over the last five years. AFL’s earnings per share over the last five years have increased by 55.00%. The current quarter earnings in comparison to the same quarter last year have increased by 23.44% which is above the required level of 15%.  AFL’s head to head comparison to its main competitor shows that the company has a gross margin below the average of its main peers, and one that is below the industry average. The operating margin is at the average of the selected peers and the industry. AFL’s twelve trailing months EBITDA is $1.72 billion, below the industry average. The company has a total debt to equity ratio of 51.27. AFL’s current price levels are above the preferable level is at the 52 week high of $82.16, and the technical indicators are bullish. AFL has a dividend payout ratio of zero%.

About AFL

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. It operates through two segments, Aflac Japan and Aflac U.S. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also provides products designed to protect individuals from depletion of assets, which comprise accident, cancer, critical illness/critical care, hospital intensive care, hospital indemnity, fixed-benefit dental, and vision care plans; and loss-of-income products, such as life and short-term disability plans in the United States.

Competitor Comparison

AFLAC Inc. (NYSE: AFL) N.V.

Highlights

Aflac is the number one insurance company in terms of individual insurance policies in force in Japan, insuring approximately one out of every four Japanese households. [Πλαίσιο κειμένου: 1Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading recommendations on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.]  The stock closed yesterday’s trading session at $62.59. In the past year, the stock has hit a 52-week low of $53.51 and 52-week high of $67.62. AFL has a market cap of $28.62 billion and is part of the financial sector.

• Variety of plans  
• Low cost structure
• High customer retention 

• Exchange rate risk    
• Dependency on Japanese economic cycles     
• Intense competition 

AFL Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. AFL's 52 week high is 67.62 current price is $62.59, is 8% below 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 9.56 below the average industry P/E ratio of 10.41 and is below the S&P 500 P/E ratio of 17.83.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 3.02% of AFL stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

AFL is trading in the range of $60.60 - $64.47 in the past 30 days. The stock has been showing support at $60.70 and resistance in the $64.00 range. The stock is trading above the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 52.48. Our indicators give a neutral view on AFL.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 3 Buy, 5 Outperform, 13 Hold, 0 Underperform and 0 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. AFL’s annual EPS for the last 5 years were 3.19, 4.92, 4.13, 6.11, 6.76 this type of earnings action is positive.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. AFL’s have total debt/equity ratio of 51.27% which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. AFL’s EPS growth for this quarter relative to the same quarter a year earlier is 31.34%, above our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. AFL’s annual earnings growth rate over the past five years is 20.87%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.