Seeking Alpha
Follows Benjamin Graham method, deep value, value, long only
Profile| Send Message|
( followers)  

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Aflac Inc. (NYSE:AFL) fares in the ModernGraham valuation model.

AFL Chart

AFL data by YCharts

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. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  3. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  4. 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
  5. Moderate PEmg ratio - PEmg is less than 20 - PASS
  6. 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

Key Data:

Recent Price$65.13
MG Value$191.03
MG OpinionUndervalued
Value Based on 3% Growth$81.07
Value Based on 0% Growth$47.53
Market Implied Growth Rate1.57%
PEmg11.65
PB Ratio2.05

Balance Sheet - 12/31/2013

Total Debt$4,897,000,000
Total Assets$121,307,000,000
Total Liabilities$106,687,000,000
Outstanding Shares459,410,000

Earnings Per Share

2013$6.76
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 - ModernGraham

2013$5.59
2012$4.74
2011$3.92
2010$3.66
2009$3.01
2008$2.91

Dividend History

AFL Dividend Chart

AFL Dividend data by YCharts

Conclusion:

Aflac is suitable for either the Defensive Investor or the Enterprising Investor, having passed all of the requirements of each investor type. As a result, value investors seeking to follow the ModernGraham approach, based on Benjamin Graham's methods, should feel very comfortable proceeding with further research into the company. From a valuation perspective, the company appears strong, having grown its EPSmg (normalized earnings) from $3.01 in 2009 to $5.59 for 2013. This is a level of demonstrated historical growth that significantly outpaces the market's current implied estimate of only 1.57% earnings growth. The ModernGraham valuation model accordingly returns an estimate of intrinsic value that is well above a margin of safety when compared to the market price.

Disclaimer: The author did not hold a position in Aflac Inc. or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of Aflac Inc.