AFL reports solid Q3 – still cheap with at least 40% upside

Aflac (AFL) reported very solid results for Q3 2012 on October 23rd. See my last post on Aflac here for previous thoughts on the company. The company continues to perform very well and still represents a compelling value at current prices and more importantly future results look to be even better. Lets take a closer look.

The summary from the Q3 press release gives you the highlights. The full release is here:

AFLAC INCORPORATED ANNOUNCES RECORD THIRD QUARTER RESULTS,
RAISES 2012 OPERATING EPS OUTLOOK,
AFFIRMS 2013 OPERATING EPS OBJECTIVE,
UPWARDLY REVISES AFLAC JAPAN SALES OUTLOOK,
INCREASES QUARTERLY CASH DIVIDEND 6.1%

The company also announced a $100M buy back in Q4 2012. Aflac measures itself on operating performance, excludes realized investment gain and losses, but its overall results were even better due to investment gains. I was very pleased to see investment results turn the corner and be positive. The company had a return of equity in the mid 20s and expects that to continue going forward. The best tid bit on Aflac’s future came on the conference call – this is why it pays, literaly, to listen to conference calls. In his closing comment the CEO, Daniel P. Amos, stated;

Yes. The only thing I would say is that if you take where we are today and look at where we were a year ago, it’s a totally different — a way of looking at what’s going on. I mean, we are in a position where every day, profits — margins and profits are going up. And I think we’re well-positioned to have a great fourth quarter and 2013, and I couldn’t be more excited about the future and what’s really been an ability our company to withstanding what went on with the financial crisis and now move look forward and really see some growth going ahead.

You can read the entire transcript of the call here. I would say that the future for the company looks bright. But they key question if is the stock a good value at current levels?

In my last post, with the stock at $46, I said it was and it surely still is, with the stock at $49ish. AFL trades at about 8 times 2012 earnings and based on a $6.90 consensus EPS for 2013 it trades at a forward P/E of about 7. That’s a P/E of 7 for a company generating mid 20 ROEs and which historically has traded at an average P/E of about 18. And its not near being a value trap with revenues and earnings still growing very nicely. My target for the stock is a P/E of 10 times 2013 earnings as a conservative estimate with an upside target P/E of 15. That implies a stock price of $70 to $105 per share. Below is the latest chart for AFL.

 

Disclosure: long AFL

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

This entry was posted in Stocks and tagged , . Bookmark the permalink.