About Aflac
The first few thoughts that come to mind when we think of Aflac are a goofy duck, Deion Sanders and Nick Saban.
As most large insurance companies tend to have silly and intriguing commercials since insurance itself is arguably one of the most boring topics of conversation ever, it’s good to know that two football legends and a talking duck vouch for the company.
So, no more research is necessary, right?
Let’s just allow a few football legends and a duck decide whether or not we should support a company financially.
No way.
Aflac is a major insurance company headquartered in Columbus, Georgia that specializes in supplemental insurance products that its competitors don’t focus on.
That and the duck are the company’s niches.
For instance, the company reportedly engages in the insurance categories of short-term disability, cancer, critical illness hospital intensive care, hospital indemnity along with a few other more general offerings such as vision, dental and life.
While initially intrigued by their commercial characters, our interest has grown as we’ve discovered what the company does and how it has separated itself from the competition. It’s somewhat assuring to also know that insurance is quite a profitable line of business (that is, for those who are good at selling on a large scale), but that’s not necessarily the case for Aflac.
We don’t like making assumptions.
We crave data.
Without further ado, let’s gain a better understanding of the company’s financial metrics and see whether or not the company’s stock is worth your time and/or money.
Aflac’s stock financials
Aflac’s stock is currently trading at around $57 with a market capitalization of $36.52 billion, a price-to-earnings (P/E) ratio of 8.85 all while distributing its shareholders an annual dividend of $1.60.
The company’s P/E ratio implies that the company’s stock is substantially undervalued since a P/E of 20 typically indicates that a stock is trading at fair value and thus anything lower suggests that it is undervalued.
Additionally, we like that the company pays out a solid annual dividend paired with the fact that the stock itself has performed consistently over the past five years, despite past and prevailing market turmoil.
Proceeding to the company’s balance sheet, Aflac’s management team oversees approximately $157.5 billion in total assets along with around $124 billion in total liabilities.
We’re comfortable with this asset to liability breakdown as total assets outweigh the company’s total liabilities by a relatively wide margin.
The company’s balance sheet is pretty boring but as we’ve discussed in previous articles, boring isn’t usually bad when it comes to the finances of a mature, established company such as Aflac.
As it relates to the company’s income statement, Aflac’s total revenue over the past five years has been incredibly consistent, staying between $21 billion and $22 billion. Most of the company’s revenue(s) come likely in the form of premiums paid by its customers and if this is the case, it’s a great sign that among the fierce competition, Aflac is retaining customers and consistently collecting, even throughout the market’s ups and downs.
From the company’s cash flow statement, their net income has been consistent and positive as well, trending at around $4 billion over the past five years. This company is also really good at generating cash from operations, as it has been able to retrieve between $5 billion and $6 billion in total cash each year, again, over the past five years.
Aflac’s stock fundamentals
We initially assumed that the company’s trailing twelve month (TTM) net profit margin would’ve been higher than that of the industry average given its presence in the specialty insurance space.
We were glad to be right.
Specifically, Aflac’s TTM net profit margin stands at just north of 20% compared to the industry’s nearly 7%.
This is a considerable difference to the upside.
As previously alluded to, Aflac is unique in that it specializes and focuses on offering products that other major companies have previously and currently still neglect.
Aflac has seemingly cornered a very lucrative and ultimately profitable stake in the specialty insurance sector that can likely be seen as the primary reason its net profit margin is so high compared to its peers.
From a returns perspective, Aflac’s TTM returns on equity and assets are pretty much in line with the industry average, however we presume that as Aflac continues to gobble up other specialty markets and subsequently adds to already long list of its product offerings, the company will be able to outpace the competition as it relates to some of its core returns.
Should you buy Aflac stock?
Aflac is a relatively silent company in terms of publicity (excluding its masterfully crafted commercials) but a dominant (operates in all 50 states) force to be reckoned with that will continue growing its market share and capabilities for years to come.
With more than solid financials supporting this company and its success and the necessity of insurance throughout all market cycles, we think Aflac is a stock that definitely deserves some more attention from the overall investment community and might just be right for your portfolio.
We give Aflac’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.