Aflac Incorporated (AFL) Valuation

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Company Profile (obtained from Google Finance): Aflac Incorporated is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. Its principal business is supplemental health and life insurance, which is marketed and administered through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), which operates in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan). Aflac’s insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan sells 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 accident/disability plans, cancer expense plans, short-term disability plans, sickness and hospital indemnity plans, hospital intensive care plans, fixed-benefit dental plans, vision care plans, long-term care plans and life insurance products.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last updated 10/16/09
• MG Value = $78
• MG Opinion = Undervalued
• Value based on 3% Growth = $48
• Value based on 0% Growth = $28
• Market-implied growth rate = 2.56%
• PEmg = 13.61
• Price to Book Ratio = 3.32

Key Data:

Balance Sheet – 6/30/2009

• Total Debt    $1,992,000,000
• Total Assets    $76,041,000,000
• Intangible Assets    $0
• Goodwill    $0
• Total Liabilities    $69,691,000,000
• Outstanding Shares    467,480,000

Earnings Per Share – Diluted

• 2009 (estimate)    $4.10
• 2008    $2.62
• 2007    $3.31
• 2006    $2.96
• 2005    $2.92
• 2004    $2.45
• 2003    $1.47
• 2002    $1.55
• 2001    $1.28
• 2000    $1.26
• 1999    $1.04

Earnings Per Share – Modern Graham

• 2009 (estimate)    $3.32
• 2008    $2.90
• 2007    $2.90
• 2006    $2.55
• 2005    $2.21
• 2004    $1.77

Valuation History:

• 10/16/09 – Value $78, Actual Price $45.20, Undervalued & Defensive
• 7/8/09 – Value $87, Actual Price $29.20, Undervalued & Defensive