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Aflac (AFL) Rides on U.S. Segment, Elevated Costs Persist
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Aflac Incorporated (AFL - Free Report) is well-poised to gain from improved net premiums of its U.S. segment and strategic initiatives intended to boost revenues.
The insurer has an impressive surprise history. It surpassed estimates in each of the trailing four quarters, with an average beat being 6.25%.
The Zacks Consensus Estimate for earnings for the second quarter has been revised upward by 1% over the past 30 days.
Factors Driving Performance
Aflac continues to benefit from improved revenues, which has been rising for the past two years.The top line has primarily been driven by strong revenues from the company’s U.S. segment, which increased 2.9% year over year in first-quarter 2020. Premiums of this segment have also climbed slightly in the first quarter. Notably, total benefit ratio improved 120 basis points (bps) in the quarter courtesy of the company’s continued focus on group and accident products. We believe a stable U.S. segment is likely to drive revenues in the days ahead.
Furthermore, the insurer has undertaken several growth initiatives for boosting its U.S business. The adoption of Everwell and One Pay Day has enhanced client retention rates and also provided for efficient delivery of value-added services. The company’s two insurance subsidiaries inked a deal to acquire the Group Benefits business of Zurich North America in March this year, which will further boost its broker distribution network in the United States. Aflac has also undertaken efforts to expand product portfolio in dental and vision products, which is evident from its buyout of Argus Dental and Vision last year.
Through its asset management subsidiary — Aflac Global Investments, the company intends to maintain a world-class investment platform that will generate sustainable risk-adjusted net investment income. To this effect, Aflac will buy minority stake in Varagon Capital Partners that will manage middle-market private debt portfolio investments of the company. This investment platform is also crucial for the company in the prevailing situation of lower interest rates.
Furthermore, the company’s solvency position is commendable. As of Mar 31, 2020, the company’s total debt to total capital of 20.4% is lower than its industry's figure of 20.8%. Further, the company’s times interest earned of 18.4 is good when compared with the industry's figure of 16.5, implying that its earnings are sufficient to cover interest obligations.
However, high costs incurred remain a concern, which are likely to put pressure on margins going forward. The company has also withdrawn 2020 earnings guidance due to the financial uncertainty induced by the COVID-19 pandemic.
Also, shares of this Zacks Rank #3 (Hold) company have lost 32% in a year, compared with the industry's decline of 33.1%. Nevertheless, we believe that the company’s strong fundamentals are likely to drive its shares going forward.
Amerisafe, Palomar and CNO Financial have a trailing four-quarter positive earnings surprise of 50.67%, 10.93% and 12.51%, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
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Aflac (AFL) Rides on U.S. Segment, Elevated Costs Persist
Aflac Incorporated (AFL - Free Report) is well-poised to gain from improved net premiums of its U.S. segment and strategic initiatives intended to boost revenues.
The insurer has an impressive surprise history. It surpassed estimates in each of the trailing four quarters, with an average beat being 6.25%.
The Zacks Consensus Estimate for earnings for the second quarter has been revised upward by 1% over the past 30 days.
Factors Driving Performance
Aflac continues to benefit from improved revenues, which has been rising for the past two years.The top line has primarily been driven by strong revenues from the company’s U.S. segment, which increased 2.9% year over year in first-quarter 2020. Premiums of this segment have also climbed slightly in the first quarter. Notably, total benefit ratio improved 120 basis points (bps) in the quarter courtesy of the company’s continued focus on group and accident products. We believe a stable U.S. segment is likely to drive revenues in the days ahead.
Furthermore, the insurer has undertaken several growth initiatives for boosting its U.S business. The adoption of Everwell and One Pay Day has enhanced client retention rates and also provided for efficient delivery of value-added services. The company’s two insurance subsidiaries inked a deal to acquire the Group Benefits business of Zurich North America in March this year, which will further boost its broker distribution network in the United States. Aflac has also undertaken efforts to expand product portfolio in dental and vision products, which is evident from its buyout of Argus Dental and Vision last year.
Through its asset management subsidiary — Aflac Global Investments, the company intends to maintain a world-class investment platform that will generate sustainable risk-adjusted net investment income. To this effect, Aflac will buy minority stake in Varagon Capital Partners that will manage middle-market private debt portfolio investments of the company. This investment platform is also crucial for the company in the prevailing situation of lower interest rates.
Furthermore, the company’s solvency position is commendable. As of Mar 31, 2020, the company’s total debt to total capital of 20.4% is lower than its industry's figure of 20.8%. Further, the company’s times interest earned of 18.4 is good when compared with the industry's figure of 16.5, implying that its earnings are sufficient to cover interest obligations.
However, high costs incurred remain a concern, which are likely to put pressure on margins going forward. The company has also withdrawn 2020 earnings guidance due to the financial uncertainty induced by the COVID-19 pandemic.
Also, shares of this Zacks Rank #3 (Hold) company have lost 32% in a year, compared with the industry's decline of 33.1%. Nevertheless, we believe that the company’s strong fundamentals are likely to drive its shares going forward.
Stocks to Consider
Some better-ranked stocks in the insurance space include Amerisafe, Inc. (AMSF - Free Report) , Palomar Holdings, Inc. (PLMR - Free Report) and CNO Financial Group, Inc. (CNO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Amerisafe, Palomar and CNO Financial have a trailing four-quarter positive earnings surprise of 50.67%, 10.93% and 12.51%, respectively.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>