When Aflac (AFL) CEO Daniel Amos took to the mic for his portion of the Q4 2011 earnings call, he had a tough challenge ahead. He was in a position were he needed to motivate investors to continue to buy stock after a rare earnings miss by his company. At the same time, Mr. Amos had to reassure current investors who have seen their shares stagnate since last summer.
Amos was able to provide some encouraging news when he stated in the latest earnings call:
"Looking ahead, I want to reiterate that our objective for 2012 is to increase operating earnings per diluted share 2% to 5% on a currency neutral basis "
However, this was followed by saying that he expected 2013 earnings growth to be stronger than the growth in 2012. While growing earnings like this is always good news, it is a signal to some investors that more of the same is ahead for the next 10 months or more. That is, continued stagnating shares. This news coming at a time when the larger market is rallying is not a welcome sign. That being said, it could also be a great opportunity for long term minded investors to take advantage.
Do Earnings Misses Matter?
Naturally, when a company misses earnings, investors are going to punish the stock. This is almost always true of all stocks. However, it is important to note that not all earnings misses are the same. The earnings miss of three cents per share that AFL had in its latest report is not nearly as serious as a three cent miss might be for other companies. For one thing, this only amounts to a 2% surprise to the downside. Secondly, considering the tragic events that have occurred in Japan in the past few years, it is not surprising that a Japanese market heavy insurance company like Aflac would suffer.
No one wants to see an earnings miss, but this small miss may be overblown. Aflac is still on target to make $6.65 or more per share in 2012. That is more than enough to justify the stock trading in the $60 range. At the moment though, Aflac only trades at $48.01 (at close February 17, 2012). This earnings miss may be keeping the price lower than it should be as nervous investors wait around to see what will happen. That is the perfect opportunity for less timid investors to strike.
On The Flip Side
Others have taken a far different view of why Aflac is priced the way it is. They claim that this price is justified because of the fact that this insurance company has so much business in Japan. They say that the issues in Japan are far from being solved, and Aflac will be paying out huge claims for some time to come. Those of this view believe that the current price is baking in these risks, and that the price may fall more.
It is important to be aware of potential risks like this, but I still feel that the worst case scenario has already been priced in, and anything even slightly better than that will send the stock up. Buying now could net investors a nice profit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.