On Jul 2, 2014, we issued an updated research report on
). This supplemental health and life insurer's strong market
position in Japan and active capital management are partly offset
by competitive market risks in the U.S. and Japan.
This Zacks Rank #3 (Hold) stock maintained an earnings streak in
all the last 4 quarters with an average beat of 4.5%. Although the
company's first-quarter 2014 earnings topped the Zacks Consensus
Estimate by about 6.3%, it was unchanged from the year-ago quarter
Aflac benefits from healthy capital ratios, product expertise,
stable ratings and accelerated capital deployment, now that most of
the investment portfolio de-risking has been completed. A
disciplined expense management is also aiding sustained
This is also evident from management's projection to repatriate
funds worth 127 billion yen ($1.24 billion) from Japan to the U.S.
in 2014, up from the prior estimate of 100 billion yen ($0.98
billion), part of which will likely facilitate share
Overall, a stable economy should help the company gather
momentum in the long run, negate interest and currency risks, and
strengthen financials. Alongside, Aflac will be able to gain from
the increased client activity and enhanced group product platform,
which will be eventually reflected in top- and bottom-line growth.
Based on these factors, management also expects earnings growth to
gradually rebound from 2015 onwards.
The weak economy in Japan, which accounts for about three-fourth
of Aflac's total revenue, is expected to continue to impede
exchange rate, financials and new money yield in 2014.The
yen/dollar exchange rate was weak by 18.2% year over year in 2013
and 9.8% in first-quarter 2014, implying that deterioration is
expected in the upcoming quarters as well.
Alongside, Aflac U.S.continues to experience sluggish sales due
to low demand, recent healthcare reforms and reduced client
activity from larger businesses due to competitive pressure.
These restraints are also reflected in a weak growth guidance
and management's expectation of low-single digit growth in 2014
owing to the negative impact of difficult comps, low interest rate
environment, higher capital expenditures, currency fluctuations and
higher Japan's consumption tax that rose from 5% to 8% effective
Overall, a stable risk-reward balance in the near term has kept
the Zacks Consensus Estimate for 2014 intact at $6.24 per share in
the last 60 days. The same for 2015 dipped 3 cents a share to $6.58
in the similar time length. However, on a year-over-year basis,
earnings are expected to grow by 1% in 2014 and 5.5% in 2015.
Key Picks in the Sector
While Aflac carries a Zacks Rank #3 (Hold), some better-ranked
life insurers include
Lincoln National Corp.
China Life Insurance Co. Ltd.
Sun Life Financial Inc.
). All these stocks have a Zacks Rank #2 (Buy).
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LINCOLN NATL-IN (LNC): Free Stock Analysis
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