Outlook
AFLAC Incorporated (NYSE:AFL) reiterated that its annual objective was to produce operating earnings per diluted share of $6.17 to $6.41, assuming the 2015 average exchange rate of 120.99 yen to the dollar.
If the yen averages 105 to 115 yen to the dollar for the second quarter, the company would expect earnings in the second quarter to be approximate $1.55 to $1.82 per diluted share. Since thus far in the current quarter the yen has averaged at 109 yen to the dollar, we can expect earnings near the top of this range.
Dividend
Aflac has paid increasing dividends for 33 consecutive years. The second quarter dividend is payable on June 1, 2016, to shareholders of record at the close of business on May 18, 2016. The forward annual dividend yield is at 2.4%, and the payout ratio is only 26.2%.
The annual rate of dividend growth over the past three years was at 5.6%, over the past five years was at 6.7%, and over the last ten years was high at 13.6%.
Source: company’s reports *assuming same dividend rate for the year
In the first quarter, Aflac repurchased $600 million, or 10.2 million of its common shares. At the end of March, the company had 38.2 million shares available for purchase under its share repurchase authorizations.
Growth
In my opinion, Aflac’s growth prospects are still firm.
According to the company, sales of cancer insurance in Japan continue to be extremely strong following the introduction of the end of the third quarter of 2015 the new cancer days products, which includes an exclusive policy sold for Japan Post. In the first quarter of 2016, the company introduced a cancer insurance product designed for those who have previously been diagnosed with cancer and been cancer-free for five years, just as it does in the United States, as well as an enhanced nonstandard medical insurance product.
According to Aflac, it will continue to be innovative in its providing options that millions of Japanese consumers are looking for as they struggle to bear the financial burdens of higher medical expenses. All of Aflac’s alliance partners continue to produce strong results, and the company is especially pleased with Japan Post and their 20,000-plus postal outlets selling Aflac’s cancer insurance.
In the U.S., the company has made changes to its sales organization to enhance it sales growth. Aflac sees 2016 as the year of stabilization and growth and continues to execute on its strategies. With Aflac generating new annualized premium sales of 3.7%, it is off to a good start toward its expectation of a 3% to 5% sales growth for the U.S. in 2016.
Valuation
Since the beginning of the year, AFL’s stock is up 15.0% while the S&P 500 Index has increased 0.1%, and the Nasdaq Composite Index has lost 5.8%.
However, since the beginning of 2012, AFL’s stock has gained only 59.2%. In this period, the S&P 500 Index has increased 62.7% and the Nasdaq Composite Index has gained 81.1%.
According to TipRanks, the average target price of the top analysts is at $71.67, an upside of 4.1% from its May 13 close price, however, in my opinion, shares could go higher.
AFL’s valuation metrics are excellent, the trailing P/E is very low at 11.3, and the forward P/E is even lower at 9.9. The price-to-free-cash-flow is extremely low at 4.75, and the enterprise value/EBITDA ratio is also very low at 6.87.
According to James P. O’Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book “What Works on Wall Street,” Mr. O’Shaughnessy demonstrates that 46 years back testing, from 1963 to 2009, have shown that companies with the lowest EV/EBITDA ratio have given the best return.
