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Columbus-based American Family Life Assurance Company (AFL), incorporated in 1973, provides insurance and management services, and operates in Japan and the United States. It sells several types of health insurance like cancer plans, general medical expense plans and care plans. The Company insures about 60 million people throughout the world. Here, is a brief analysis of the fundamentals:

INCOME STATEMENT ($ million)

SALES

NET INCOME

EPS

DIVIDENDS

2001

$9,598.00

$687.00

$1.28

$0.19

2002

$10,257.00

$821.00

$1.55

$0.23

2003

$11,447.00

$768.00

$1.47

$0.23

2004

$13,281.00

$1,266.00

$2.45

$0.38

2005

$14,363.00

$1,483.00

$2.92

$0.44

2006

$14,616.00

$1,483.00

$2.96

$0.55

2007

$15,393.00

$1,634.00

$3.31

$0.80

2008

$16,554.00

$1,254.00

$2.62

$0.96

2009

$18,254.00

$1,497.00

$3.19

$1.12

2010

$20,732.00

$2,344.00

$4.95

$1.14



When we look at the graphs (click on the one above to enlarge), we can observe that sales have increased every year between 2001 and 2010. Net income also had increased until 2008; the financial crisis affected the company’s net income negatively between 2008 and 2009. By 2010 the company was able to put the net income back on track.

AFLAC has increased its revenues from $9.60 billion in 2001 to $20.73 billion in 2010. The net income followed a similar trend, increasing from $687 million in 2001 to $2.34 billion in 2011. In the last decade, EPS increased in every year except 2003 and 2008. Annual average EPS growth was 28.67%, and 2010 EPS of $4.95 was 4 times higher than that of 2001.


click to enlarge

Dividend History: AFLAC was able to increase its dividends almost every year in the last decade. Between 2001 and 2010, AFL’s annual dividends increased from $0.19 to $1.14. The dividends reached their peak value of $1.14 in 2010. The current yield is 2.02%. Last quarterly dividend amounted to $0.3, with a record date of February 15. If the current dividend payments continue this year, AFLAC will pay a dividend of $1.2 per share.

BALANCE SHEET ($ million)

CURRENT ASSETS

CURRENT LIABILITIES

LONG TERM DEBT

2001

$37,860.00

$32,435.00

$1,207.00

2002

$45,058.00

$38,664.00

$1,312.00

2003

$50,964.00

$44,318.00

$1,409.00

2004

$59,326.00

$51,750.00

$1,429.00

2005

$56,361.00

$48,434.00

$1,395.00

2006

$59,805.00

$51,464.00

$1,426.00

2007

$65,805.00

$57,010.00

$1,465.00

2008

$79,331.00

$72,692.00

$1,721.00

2009

$84,106.00

$75,689.00

$2,599.00

2010

$101,039.00

$89,983.00

$3,038.00

click to enlarge

AFL’s current assets and current liabilities behave in the same way. As can be seen in the graph above, over the past decade, the company’s current assets and current liabilities show an increasing trend. The only exception was 2005. Between 2004 and 2005, both of them exhibit a declining trend. When we look through the company’s long term debt, AFLAC has some long term debt and since 2001, its long term debt has behaved in similar fashion to current assets and current liabilities. Between 2001 and 2010, current assets increased from $37.86 billion to $59.33 billion, and current liabilities increased from $32.44 billion to $51.75 billion.

HISTORICAL FUNDAMENTALS

AVG P/E

PROFIT MARGIN (%)

2001

22.4

7.20%

2002

18.9

8.00%

2003

22.3

6.70%

2004

16.1

9.50%

2005

14.6

10.30%

2006

15.5

10.10%

2007

16.1

10.60%

2008

21.9

7.60%

2009

10.9

8.20%

2010

10.2

11.30%



Although the average P/E ratio was the highest in 2001 with 22.4, it declined to 18.9 in 2002. The lowest average P/E ratio was seen in 2010 with 10.2. The average P/E ratio showed a fluctuating trend in the last ten years. From 2001 to 2010, it decreased from 22.4 to 10.2. When we look at the company's profit margin, it was the highest with 7.20% in 2001. However, at that time, the average P/E ratio was the highest. The 2010 net profit margin of 11.30% is the highest in company’s history.

Direct Competitor Comparison (From Yahoo Finance)

AFL

UNM

AIZ

AMIC

Market Cap

25.31B

8.07B

3.72B

44.27M

Employees

8,211

9,500

14,000

52

Qtrly Rev Growth (yoy)

1.70%

0.10%

-6.10%

-16.40%

Revenue (ttm)

20.82B

10.19B

8.40B

89.40M

Gross Margin (ttm)

27.19%

29.64%

21.89%

43.82%

EBITDA (ttm)

3.49B

1.52B

1.07B

4.93M

Operating Margin (ttm)

16.36%

14.19%

11.19%

4.56%

Net Income (ttm)

2.10B

881.70M

263.70M

2.10M

EPS (ttm)

4.44

2.74

2.45

0.25

P/E (ttm)

12.18

9.57

15.76

20.8

PEG (5 yr expected)

0.68

0.74

0.87

N/A

P/S (ttm)

1.23

0.81

0.45

0.5

AFLAC’s gross margin of 27.19% indicates that, in terms of profitability, the company is above Assurant (NYSE:AIZ). However, its operating margin of 16.36% is much higher than the competitors in the Accident & Health Insurance sector. Apparently, AFLAC is able to access customers with much lower operating costs. AFLAC’s trailing P/E ratio of 11.14 is slightly below the industry. When we look through the expected PEG ratios, Aflac’s PEG ratio of 0.68 is the lowest among the competitors.

Summary

AFLAC ranks 125th in Fortune Global 500, based on revenues. The company took its place in Ethisphere Magazine’s list of the World’s Most Ethical Companies for the fifth consecutive year. In March 2011, FORTUNE magazine named AFLAC among the America’s Most Admired Companies for the tenth consecutive year.

Morningstar states that AFLAC was the first to enter the Japanese market as an insurance provider. That explains the reason why its stock was subject to extreme volatility in the last few months. However, according the company, analysts covering AFLAC expect a 5-year EPS growth of 12%. I do not know how much damage AFLAC will suffer from the recent earthquake, but George Soros continues to hold the stock, keeping 1 million shares. Vanguard, the largest institutional shareholder also increased its shares by 1 million in the last quarter. Once the earthquake damage is released, depending on the losses, it could be considered as a dividend pick for the next 5 years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Aflac: Dividend Pick for the Next 5 Years