The Risks at AFLAC

At Seeking Alpha, Thomas Lott shares his thoughts on AFLAC ($AFL):

Book per share today is $25.65. Compared to a $36 stock price, that is a 1.4x price to book ratio. Historically going back to 2001, the price to book has averaged around 2.6x. That does make AFL seem somewhat cheap. I think my problem as pointed out above is that bank losses have probably hurt the balance sheet since June 30th. AFLAC has begun to derisk, and the smart play for management is to sell down European bank bonds they own. Let’s just assume that their $706mm in losses is $1BB now, and that their capital gains have been cut in half (roughly $1BB of capital gains). That would imply a hit of around $2 per share to book to around $23.65. With the stock at $36, that is a price to book multiple of 1.5x.

Read the whole thing. On balance, Lott likes the stock although he thinks there’s a chance it could fall to $22 if there’s a full panic in Europe. On the plus side, he calls it a buy below $30 per share and says it could hit $60 within two years. However, he’s curious as to why the company is so invested in Europe.

Posted by on September 19th, 2011 at 10:52 am


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