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Aflac (AFL) Down 1.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Aflac (AFL). Shares have lost about 1.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aflac due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Aflac's Q4 Earnings Beat on Lower Benefits and Expenses

Aflac reported fourth-quarter 2022 adjusted earnings per share (EPS) of $1.29, which beat the Zacks Consensus Estimate of $1.21. The bottom line increased 0.8% year over year.

AFL’s revenues dropped 26.2% year over year to $4,010 million in the quarter under review. The top line missed the consensus mark by 10.7%.

Strong fourth-quarter earnings were supported by reduced benefits and expenses, and improved profit levels from the U.S. businesses. The positives were partially offset by lower net investment income and weaker performance in the Japan unit.

2022 Performance

Adjusted 2022 EPS declined 10.3% from a year ago to $5.33. Total revenues fell 11.8% to $19,502 million. While net earned premiums decreased 13.5% to $15,263 million, net investment income fell 4.2% to $3,656 million.

Q4 Performance

Adjusted net investment income fell 5.9% year over year to $840 million. Total net benefits and claims of $2,028 million declined 21.4% year over year in the fourth quarter. Total acquisition and operating expenses dropped 9.9% year over year to $1,458 million. Total benefits and expenses of $3,486 million fell 17% year over year.

Segmental Update

Aflac Japan

The segment’s adjusted revenues decreased 22.7% year over year to $2,775 million in the quarter under review. Total net earned premiums of $2,164 million dropped 22.9% year over year due to limited pay products attaining paid-up status and reducing in force. The figure, however, beat the Zacks Consensus Estimate of $2,080.4 million.

Adjusted net investment income plunged 21.7% year over year to $604 million. Pretax adjusted earnings of the segment amounted to $704 million, which tumbled 20.6% year over year in the fourth quarter.

New annualized premium sales of $115 million improved 11.4% year over year. The benefit ratio of the segment was 66.2% in the fourth quarter.

Aflac U.S.

The segment reported adjusted revenues of $1,621 million, which climbed 0.1% year over year in the quarter under review. Total net earned premiums slid 0.2% year over year to $1,388 due to reduced year-to-date persistency. The figure beat the Zacks Consensus Estimate by 1.2%.

Adjusted net investment income of $192 million slipped 2.5% year over year. Pretax adjusted earnings of the segment were $340 million, up 30.3% year over year in the fourth quarter due to reduced benefits recognized.

Aflac U.S. sales of $545 million grew 17.4% year over year. The fourth-quarter benefit ratio came in at 40.8%.

Financial Position (as of Dec 31, 2022)

Aflac exited the fourth quarter with total cash and cash equivalents of $3,943 million, which declined from $5,051 million at 2021-end. Total investments and cash of $117.4 billion declined from $143 billion at 2021-end. Total assets dropped to $131 billion from $157.5 billion a year ago.

Adjusted debt decreased to $7,105 million at the fourth-quarter end from $7,568 million a year ago.

Total shareholders' equity of $22,365 million plunged from $33,253 million a year ago.

Adjusted debt to adjusted capitalization came in at 23.3%, which improved 60 basis points (bps) year over year.

While it has no debt maturities in less than a year, total debt maturities worth $1,334 million are expected within the next five years.

Adjusted book value per share increased 9.7% year over year to $43.51.

Adjusted return on equity of 11.8% deteriorated 130 bps year over year.

Capital Deployment

Aflac bought back 8.9 million shares worth $600 million in the fourth quarter. It had 116.6 million shares left for buyback as of 2022-end.

Management announced dividends of 42 cents per share for the first quarter of 2023, marking a 5% increase. The dividend will be paid out on Mar 1, 2023, to its shareholders of record as of Feb 15.

Outlook

Aflac estimates improved sales in its Japan business for 2023, buoyed by improving pandemic conditions, product launches and product updates. The benefit ratio normalized in the fourth quarter and the momentum is expected to continue.

Management also remains optimistic about strong sales results within its U.S. business. Improving productivity, contributions from platforms like network dental and vision and group life, and disability are expected to continue supporting the results.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Aflac has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aflac has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Aflac belongs to the Zacks Insurance - Accident and Health industry. Another stock from the same industry, Unum (UNM), has gained 9.8% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

Unum reported revenues of $3 billion in the last reported quarter, representing a year-over-year change of +0.4%. EPS of $1.43 for the same period compares with $0.89 a year ago.

Unum is expected to post earnings of $1.60 per share for the current quarter, representing a year-over-year change of +17.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +3.5%.

Unum has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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Aflac Incorporated (AFL) : Free Stock Analysis Report

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