Insurance Stocks

AFLAC Inc Valuation – August 2016 $AFL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how AFLAC Inc (AFL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Aflac Incorporated is a business holding company. The Company engaged in is supplemental health and life insurance, which is marketed and administered through its subsidiary, American Family Life Assurance Company of Columbus (Aflac). Aflac’s insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac offers insurance policies in Japan and the United States that provide a layer of financial protection against income and asset loss. Aflac Japan sells voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans and annuities. Aflac U.S. sells supplemental insurance products, including products designed to protect individuals from depletion of assets, such as accident, cancer, critical illness/care, hospital intensive care, hospital indemnity, fixed-benefit dental, and vision care plans and loss-of-income products.

AFL Chart

AFL data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AFL – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $30,716,643,729 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 104.50% Pass
5. Moderate PEmg Ratio PEmg < 20 11.66 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.34 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AFL value chart August 2016

EPSmg $6.27
MG Growth Estimate 4.92%
MG Value $115.02
Opinion Undervalued
MG Grade A
MG Value based on 3% Growth $90.90
MG Value based on 0% Growth $53.28
Market Implied Growth Rate 1.58%
Current Price $73.07
% of Intrinsic Value 63.53%

AFLAC Incorporated qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.72 in 2012 to an estimated $6.27 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.58% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into AFLAC Incorporated revealed the company was trading below its Graham Number of $87.87. The company pays a dividend of $1.62 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.66, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

AFLAC Incorporated fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

AFL charts August 2016

Graham Number $87.87
PEmg 11.66
PB Ratio 1.34
Dividend Yield 2.22%
TTM Dividend $1.62
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $5,009,000,000
Total Assets $141,287,000,000
Intangible Assets $0
Total Liabilities $118,737,000,000
Shares Outstanding (Diluted Average) 414,326,000

Earnings Per Share History

Next Fiscal Year Estimate $6.30
Dec2015 $5.85
Dec2014 $6.50
Dec2013 $6.76
Dec2012 $6.11
Dec2011 $4.12
Dec2010 $4.92
Dec2009 $3.19
Dec2008 $2.62
Dec2007 $3.31
Dec2006 $2.95
Dec2005 $2.92
Dec2004 $2.45
Dec2003 $1.50
Dec2002 $1.49
Dec2001 $1.28
Dec2000 $1.26
Dec1999 $1.04
Dec1998 $0.88
Dec1997 $1.04
Dec1996 $0.68

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.27
Dec2015 $6.12
Dec2014 $6.07
Dec2013 $5.58
Dec2012 $4.72
Dec2011 $3.89
Dec2010 $3.65
Dec2009 $3.01
Dec2008 $2.90
Dec2007 $2.90
Dec2006 $2.55
Dec2005 $2.21
Dec2004 $1.77
Dec2003 $1.39
Dec2002 $1.29
Dec2001 $1.16
Dec2000 $1.06

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – July 2016
10 Low PE Stocks for the Defensive Investor – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
10 Low PE Stocks for the Defensive Investor – June 2016
10 Low PE Stocks for the Defensive Investor – May 2016

Other ModernGraham posts about related companies

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Genworth Financial Inc Valuation – August 2016 $GNW
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Cigna Corp Valuation – July 2016 $CI
Progressive Corporation Valuation – June 2016 $PGR
Cincinnati Financial Corporation Valuation – May 2016 $CINF
Lincoln National Corporation Valuation – May 2016 $LNC
Allstate Corporation Valuation – May 2016 $ALL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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