AFLAC: Cheap At Current Price

| About: Aflac Incorporated (AFL)

AFLAC Inc (NYSE:AFL) is a U.S. Insurance company that does most of its business in Japan. In fact, 77% of revenues are generated from AFLAC's Japanese business with the balance of revenues coming from the United States. AFLAC focuses on various forms of voluntary supplemental insurance in Japan/United States as well as life insurance in Japan.

In Japan, AFLAC provides life insurance as well as a broad array of supplemental insurance policies. Some of these supplemental plans are specifically for cancer, accidents, medical indemnity, and general medical/sickness benefits. Policies are designed to cover costs associated with an illness/accident that are not covered by Japan's national health insurance system. Most of these life/supplemental policies are sold through post offices, bank branches, and independent insurance agents.

Most of us in the United States are familiar with AFLAC's supplemental insurance products promoted through its AFLAC Duck T.V. commercials. These policies pay cash claims to policyholders to cover expenses that primary health insurance policies do not cover. Typically, these policies are bought through an independent insurance agent or through a group policy with an individual's employer. Individual policies are portable when a policyholder changes jobs/health insurance plans. However, group supplemental plans typically are not portable when a covered employee leaves a company.

We expect that AFLAC with grow revenues at a slower pace this year with revenue growth rates in the mid single digits. In our opinion, AFLAC's overall capital position and its Japanese/United States insurance operations appear to be quite strong. AFLAC has been consistently profitable, even through the last recession. In the future, AFLAC should be able to use that profitability to increase shareholder value through share repurchases and dividend increases. We estimate that AFLAC will earn $6.45 per share in 2013 and $6.94 per share in 2014 compared to 2012 earnings of $6.11 per share.

We believe that AFLAC is a good buy for the following reasons:

  1. AFLAC is selling at a cheap forward earnings multiple of 7.3 times 2013 projected consensus earnings.
  2. AFLAC has a solid balance sheet with $2.07 billion in cash and a conservative investment portfolio.
  3. AFLAC has an attractive 2.70% dividend yield and a history of consistent dividend increases with a 6.0% increase last year.
  4. S&P has a Strong Buy rating on the stock (5 out of 5 stars) and a 12 month price target of $58.00 per share which is 17.1% above today's price.

Disclaimer: We are investment advisors. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.