Aflac Rides on Strong U.S. Business, Solid Capital Position
Aflac Inc. AFL continues to benefit from favorable performance in its U.S. business and a strong capital position, which enables further investment.
In its U.S. business, Aflac continues to put up a good show, with constant growth in premiums over the years. It has undertaken a number of growth initiatives in this segment such as the adoption of Everwell and One Pay Day for increased penetration, delivery of value-added services and increased client retention, product partnering to drive improved account values and employee access, and investment in administrative capabilities.
Year to date, the stock has gained 18.7% compared with the industry’s growth of 15.7%.
For the first nine months of 2019, the U.S. segment exceeded management’s expectation of pre-tax profit margin. This achievement came on the back of continuous investment in its platform, distribution and customer experience.
Nevertheless, sales at the U.S. segment have remained somewhat challenged in 2019, compared with 2018. The third quarter witnessed weaker-than-expected sales. As a result, Aflac anticipates 2019 results to be flat-to-down slightly. The company seeks to grow profitable earned premium, which is estimated in the range of 2% in 2019.
The U.S. segment suffered from soft sales due to macroeconomic elements. Strong employment led to fewer people taking up the independent commission sales role. This constrained sales agent recruiting and thereby sales.
However, a high employment scenario has driven demand for Aflac’s workplace Benefit Solutions. Also, the company is advancing its direct-to-consumer platform. Overall, Aflac expects its U.S. segment to recover in 2020.
Aflac’s strong risk-adjusted capital position is another positive. The company has raised dividends for 36 consecutive years. The stock is known as dividend aristocrat and is viewed attractively by investors.
Aflac carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same space are First American Financial Corp. FAF, NMI Holdings Inc. NMIH and RLI Corp. RLI. Each of these stocks carries a Zacks Rank #1 (Strong Buy) and have surpassed estimates in each of the last four reported quarters by 12.2%, 8.39% and 154.9%, respectively.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.