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Last week, insurance giant Aflac (NYSE:AFL) reported second quarter earnings. The earnings and revenue were decent, despite a weakened market in Japan. However, most investors probably missed a new game changer coming in the important Japanese market.

Aflac announced an expansion with Japan Post, the largest insurer in the world. Under the expanded alliance, Aflac's presence will grow from 1000 to 20,000 post office outlets in Japan. In those locations, customers will be able to purchase Aflac's cancer products. Seventy nine Kampo agencies, which is owned by Japan Post Holdings, will also offer Aflac products. Kampo has never offered Aflac products until now.

Aflac began a partnership with Japan Post in 2008, but this is the ultimate peak for the alliance. Aflac Japan Chairman Charles Lake referred to the deal as a game changer. The partnership will expand beginning in October. Japan Post Holdings owns three business units in: Japan Post, Japan Post Insurance, and Japan Post Bank. The company is the world's largest insurer with over $1 trillion in assets.

Second quarter revenue increased 2.4% to $6.0 billion. Earnings per share increased to $1.90, versus earnings of $1.03 from a year ago. Aflac Japan revenue shrank 10.7% to $4.4 billion. Aflac US revenue grew 3.4% to $1.5 billion. In Japan, third sector sales (which includes cancer products) declined 4.9%. This important growing segment should see a huge boost going forward with the expansion through Japan Post.

Back in January, I selected Aflac as one of my annual top ten stock picks for the year. The three key reasons I gave were: valuation, dividend yield, and Aflac Japan. Low valuation and strong dividend yield still hold true today. The addition of this game changer in Japan showcases the third key reason to invest in the company.

Shares of Aflac have increased 17% in 2013 and are trading just shy of fifty two week highs. Keep in mind though, shares are still undervalued when compared to earnings per share estimates. Analysts on Yahoo Finance expect the company to earn $6.19 in fiscal 2013 and $6.52 in fiscal 2014. This would give the company price to earnings ratios of 10.1 and 9.5 on a current and forward basis respectively.

However, it is important for investors to look at the company's own guidance. Aflac believes full year earnings will come in a range of $5.83 to $6.37. Obviously, part of that guidance hits lower than estimates. The other part of that guidance represents significant upside from analysts' estimates and shows shares trading under ten times high end earnings per share. Also, keep in mind that the recent Japan Post expansion is not priced into 2014 guidance from analysts or the company. I expect that $6.52 figure to be raised as details emerge and the expansion gets closer. Shares remain undervalued and should be trading at a higher multiple like 12 or 15. It's time to get behind Aflac and invest in Japan.

Source: Aflac Shares Still Undervalued With Game Changer Coming To Japan