Aflac (AFL) Hits 52-Week High: More Upside Potential Left?

Shares of Aflac Inc. AFL hit a 52 week high of $57.63 on the last trading day.

The stock rally is likely to be have been led by investors’ bullishness about the insurer’s regaining of top-line strength and other strategic measures. These include product introductions, expansion of virtual sales platform, resumption of sales via Japan Post and a solid balance sheet, which poise the life and health insurer towel for long-term growth.

Last year, the company’s revenues suffered due to pandemic-led disruption in face-to-face sales of insurance policies. Per the company, physical sales are best suited to selling products by its agents to the customers and that took a hit from widespread lockdowns.

Developing a Virtual Sales Platform

The insurer was steadfast in constructing virtual digital sales platform, which will to some extent contribute to sales. Its increased use of the virtual medium can be found in the second quarter, when it processed more than14,000 online applications as compared to nearly 8,000 in the first quarter. In fact, partly due to this virtual platform, sales improved year over year for the first time during the pandemic in the June quarter in both the United States and Japan segments.

Given the ongoing level of recovery in the pandemic situation, the company expects a stronger second half of the year in both countries.

U.S Segment on a Strong Footing

Sales are set to rise in this unit owing to the acquisition of Argus Holdings in 2019, which expanded its product suite by adding dental and vision products. These products are considered very important benefit by employees. Expansion into the vision and dental insurance marketplaces positions Aflac U.S. well for long-term success. Alongside strong persistency (solid premium persistency shows customer retention), underwriting profits and investment income continue to drive the pre-tax margins at this segment.

Japan Segment Set for Revival

Product development, online or digitally-assisted sales and specific sales efforts on the Japan Post platform will boost long-term growth. Sales are set to improve in the coming quarters owing to resumed sales activity at the Japan Post. Also, the launch of cancer insurance product at the start of this year will aid sales.

The product pipeline comprising short-term health and income support as well as care product target supplemental elderly care. These will meaningfully bolster future sales. Japan’s aging population and the anticipated continued shift in the financial burden from government levels to individuals bodes well for sales growth of these products.

Apart from taking measures to augment its sales, Aflac Japan is working to make itself paperless, which means all the processing will be technologically driven. This will bump up operational efficiency in the long run.

Solid Investment Income

With regard to its investment income, which is another component of the insurer’s revenues, Aflac did an impressive job by investing in variable assets. Since interest rates in fixed investments have been low over the past many years and will remain so in the foreseeable future, the company is investing in other assets. Courtesy of its superior returns on variable investments, net investment was up in the first six months of 2021.

Dividend Aristocrat

Aflac is firing on all cylinders to keep its business prospering. What attracts investors the most is its infallible dividend, which has been growing consistently from the past 38 consecutive years. Also its low dividend payout ratio of 10.4% gives surety that of the  company's ability to maintain and increase dividend payouts going forward.

Given its well-placed growth strategies and an improving economy, shares are sure to gain further. The stock thus deserves a safe investment option for long-term gains. Considering the current price-to-earnings ratio of 10.72, the stock is almost at the same level as that of the the industry average of 10.38 but is below its 5-year high of 11.36. Thus, buying it at the current price level is a good bargain.

In a year's time, the stock has gained 53% compared with its industry's growth of 49%.

Image Source: Zacks Investment Research

Aflac currently carries a Zacks Rank #2 (Buy) and a Value Score B. It’s been proved time and again that stocks with a solid Zacks Rank #1 (Strong Buy) or 2 and a Value Score of A or B offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other stocks in the insurance industry worth considering are The Hartford Financial Services Group, Inc. HIG, MetLife, Inc. MET and American International Group, Inc. AIG, each carrying the same Zacks Rank as Aflac.


 

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.