AFLAC at $71?

Over the weekend, Barron’s had a nice profile of AFLAC (AFL). Here’s a sample:

With Wall Street focused on the company’s investment portfolio, little attention has been paid to estimates of 8% to 12% growth in 2011 in Aflac’s operating earnings, excluding currency translation. Shares trade for only eight times 2011 projected profits, when a multiple of 12 times earnings is more appropriate, says Scott Chapman, another Lateef manager. Based on the 2011 consensus earnings estimate of $5.96 a share, that multiple would result in a stock price of 71. (Woo hoo!)
Aflac will report second-quarter earnings Tuesday. Analysts have penciled in $1.33 a share for the period, and $2.6 billion, or $5.45 a share, for the full year, on revenue of $20.4 billion. The company garners 73% of its premiums, and 78% of operating profit, from sales of supplemental policies in Japan; the remainder is generated in the U.S. Aflac is a market leader in Japan, but has had a tougher time domestically, particularly in recent years, as high unemployment has reduced the ranks of those who purchase policies through employers.
Like all insurers, Aflac invests the money it collects from policyholders, and tries to generate more income from its investments than it will have to pay out in claims. Despite today’s low interest rates, the company has been able to turn a profit on its investment portfolio.

I don’t have an estimate for AFLAC’s Q2 earnings. In April, they gave a range of $1.33 to $1.38 per share. The company will probably beat $1.33 per share but that’s not the reason why I like the stock. My case for AFLAC is that everyone else seems to think the company is in dire straits and they’re clearly not.
If Tuesday’s earnings report comes in good, I think Wall Street will soon expect AFLAC to earn over $6 a share for 2011.

Posted by on July 25th, 2010 at 9:51 pm


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