ModernGraham Valuation: AFLAC Inc. (AFL)



Company Profile (obtained from Google Finance): Aflac Incorporated (Aflac) is a general business holding company and acts as a management company, overseeing the operations of its subsidiaries by providing management services. Its business is supplemental health and life insurance, through its subsidiary, American Family Life Assurance Company of Columbus, which operates in the United States and as a branch in Japan. Aflac’s insurance business consists of two segments: Aflac Japan and Aflac U.S. 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 voluntary supplemental insurance products including loss-of-income products and products designed to protect individuals from depletion of assets (hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/ critical care, and hospital intensive care plans).

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass all 6 of the following tests: Score = 6/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  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 all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Calculator)

Key Data:

MG Value $189
MG Opinion Undervalued
Value Based on 3% Growth $81
Value Based on 0% Growth $47
Market Implied Growth Rate 1.71%
PEmg 11.91
PB Ratio 2.11

Balance Sheet – 9/30/2013 

Total Debt $4,953,000,000
Total Assets $119,918,000,000
Total Liabilities $105,260,000,000
Outstanding Shares 465,710,000

Earnings Per Share – Diluted

2013 (estimate) $6.68
2012 $6.11
2011 $4.18
2010 $4.95
2009 $3.19
2008 $2.62
2007 $3.31
2006 $2.96
2005 $2.92
2004 $2.52
2003 $1.52

Earnings Per Share – Modern Graham

2013 (estimate) $5.56
2012 $4.74
2011 $3.92
2010 $3.66
2009 $3.01
2008 $2.91


AFLAC is a very attractive company, passing all of the requirements for both the Defensive Investor and the Enterprising Investor.  The company has a strong balance sheet, good dividend history, and solid earnings growth.  Defensive Investors and Enterprising Investors should feel very comfortable continuing with their research into the company.  From a valuation standpoint, the strong earnings growth from an EPSmg (normalized earnings) of $2.91 in 2008 to an estimated $5.56 in 2013.  Such growth far outpaces the 1.71% the market is implying.  The company appears significantly undervalued by the ModernGraham valuation model.  Defensive Investors and Enterprising Investors should undertake further research to determine if the company would be suitable for their individual investment portfolios, while keeping in mind the 7 Key Tips to Value Investing.

What do you think?  Is AFLAC Inc. undervalued?  Is the company suitable for both Defensive Investors and Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in AFLAC at the time of publication and had no intention of entering into a position in the next 72 hours.

Photo Credit:  Andrew Magill

2 thoughts on “ModernGraham Valuation: AFLAC Inc. (AFL)

    1. Thanks Brian. It’s nice to see articles that agree with what the ModernGraham methods find.

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