Company Profile (excerpt from Reuters): Aflac Incorporated, incorporated on April 27, 1973, is a business holding company. The Company is involved in supplemental health and life insurance, which is marketed and administered through its subsidiary, American Family Life Assurance Company of Columbus (Aflac). The Company’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, such as life and short-term disability plans.
Downloadable PDF version of this valuation:
ModernGraham Valuation of AFL – January 2019
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 | $34,196,651,286 | 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 | 111.77% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 10.93 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.49 | 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
| EPSmg | $4.11 |
| MG Growth Estimate | 5.32% |
| MG Value | $78.68 |
| Opinion | Undervalued |
| MG Grade | A+ |
| MG Value based on 3% Growth | $59.60 |
| MG Value based on 0% Growth | $34.94 |
| Market Implied Growth Rate | 1.21% |
| Current Price | $44.92 |
| % of Intrinsic Value | 57.09% |
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 $3.03 in 2014 to an estimated $4.11 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.21% 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 $53.04. The company pays a dividend of $0.87 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 10.93, which was below the industry average of 30.63, 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
| Graham Number | $53.04 |
| PEmg | 10.93 |
| PB Ratio | 1.49 |
| Dividend Yield | 1.94% |
| TTM Dividend | $0.87 |
| Number of Consecutive Years of Dividend Growth | 20 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $5,279,000,000 |
| Total Assets | $137,941,000,000 |
| Intangible Assets | $0 |
| Total Liabilities | $114,707,000,000 |
| Shares Outstanding (Diluted Average) | 772,070,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $3.97 |
| Dec2017 | $5.77 |
| Dec2016 | $3.21 |
| Dec2015 | $2.93 |
| Dec2014 | $3.25 |
| Dec2013 | $3.38 |
| Dec2012 | $3.06 |
| Dec2011 | $2.06 |
| Dec2010 | $2.46 |
| Dec2009 | $1.60 |
| Dec2008 | $1.31 |
| Dec2007 | $1.66 |
| Dec2006 | $1.48 |
| Dec2005 | $1.46 |
| Dec2004 | $1.23 |
| Dec2003 | $0.74 |
| Dec2002 | $0.78 |
| Dec2001 | $0.64 |
| Dec2000 | $0.63 |
| Dec1999 | $0.52 |
| Dec1998 | $0.44 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $4.11 |
| Dec2017 | $4.02 |
| Dec2016 | $3.15 |
| Dec2015 | $3.06 |
| Dec2014 | $3.03 |
| Dec2013 | $2.79 |
| Dec2012 | $2.36 |
| Dec2011 | $1.95 |
| Dec2010 | $1.83 |
| Dec2009 | $1.51 |
| Dec2008 | $1.45 |
| Dec2007 | $1.45 |
| Dec2006 | $1.28 |
| Dec2005 | $1.11 |
| Dec2004 | $0.89 |
| Dec2003 | $0.70 |
| Dec2002 | $0.65 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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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