AFLAC Expects Strong Growth Over Next 10 Years

Aflac (AFL) has treated investors very well for a long time, and even though it appears to be correcting after a nice run at the moment, it looks like it will continue to be a good long-term investment. In Japan, Aflac's largest market, the company has been expanding its sales force and by the end of 2007 had "approximately 3,300" newly trained sales associates.

And the company expects new products to help improve sales in Japan despite "facing a weak and challenging market place," according to the company's January 31 conference call with analysts, available on Seeking Alpha. AFL also is rapidly growing its U.S. sales force. This means that as the new associates become more effective, sales will grow more rapidly, all other things being equal.

The company expects to continue to report strong growth over the next 10 years. It seems to do well even when the economy is in a funk. The stock's beta is .51 and its PEG ratio (PE/growth rate) is a low 1.11. The forward PE is 14.13 and the trailing 12 months PE is 19. Further, AFL is expanding its advertising to print, radio and online advertising, which should boost sales. Daniel P. Amos, chairman and CEO, told analysts:

With the effective combination of products, distribution, customer service and brand, I believe we're poised to continue to have strong sales growth. Our sales objective for 2008 is to have an 8 to 12% increase and we expect to achieve that. However, as I mentioned in the year-end release, first-quarter sales would be weak in part because of the shift in the conversion premium in the first quarter of 2008 from the fourth quarter of last year. In addition, we got off to a little bit slower start this year following a very strong push by our sales force at the end of the year. Yet I remain encouraged about the opportunities in the U.S. market for the year and beyond. We estimate that we have only penetrated about 7% or 5.9 million businesses in the U.S. with fewer than 500 workers. That suggests that there is a vast market of potential payroll accounts and customers for Aflac to reach in years ahead.

Aflac expects to increase 2008 operating earnings per share 13% to 15%, "before the impact of the strengthening yen and weakening dollar. That's a pretty narrow range compared with estimates being made by other companies, showing either a very conservative approach to forecasting or a lot of confidence in the market. AFL will repurchase 12 to 18 million of its shares this year. Share buy backs are generally a sign a company doesn't think it can expand its business with all of its available cash and believes reducing the float is better for shareholders than paying higher dividends. In 2007, however, AFL not only grew its marketing and sales operations, it also increased its dividend twice, putting the cash dividend 45.5% higher than it was in 2007. In January, AFL announced another 17.1% dividend increase. The current dividend yield is 1.5%.

Aflac's key statistics are here. Analysts give AFL an average rating of 2.4, which is the equivalent of a a hold with a median target of $67.50 on the $62.53 stock. Morningstar.com gives the stock three stars and estimates its fair value is $55. It says consider selling AFL at $71.50. Point and figure charts are bullish with an $80 price objective. The Monthly chart also is bullish, but the daily and weekly charts are flashing sell signals. January 2010 AFL 60 calls suggest the stock will touch $72 before the options expire. The January 2010 AFL 60 puts warn the stock could fall to about $51.

Disclosure: I have no position in AFL, but my investment club does.